Gold tip-toes higher in Europe, sees strong support at $655/oz

London (Platts)--2May2006

Gold tip-toed higher in Europe in thin, nervous trading after the long
weekend which kept the UK market closed on Monday. Bullion was bid at
$659.50/oz at 1126 GMT, up from its morning fix of $657.75/oz and from New
York's spot close Monday of $657.60/oz.
A European trader suggested that the yellow metal was beginning to form a
base in the $655/oz area. "It feels like when gold gets close to $655/oz
buying comes in," he said. The market has not seen a correction for a while,
said the trader, who added that it probably would do it good to do so in order
to consolidate its recent gains. But with the US dollar so weak, oil prices
still rising, and continued geo-political concerns "there is no reason at this
point for gold to come down," the trader suggested. The metal has "good
potential on the upside" with first line resistance seen at $662-663/oz--an
area the metal has recently failed to break through, he said.
TheBullionDesk.com analyst James Moore appeared to agree with this
analysis, suggesting that gold was likely to remain in "strong spirits" and
could potentially test toward $670-675/oz later in the week. The European
trader also suggested that bullion was likely to trade a range of $650-670/oz
this week.
Securities analyst for Numiscorp John Meyer said in his daily report that
he expected gold prices to push higher on the continued allocation of funds
into the commodities sector. "While speculative activity appears to move
prices for short runs, we believe that more fundamental supply/demand issues
and greater long-term investment interest in gold is responsible for the
long-run rise in prices, rather than short-term speculator activity," Meyer
suggested. He speculated that gold looked likely to head towards the $700/oz
mark in the coming weeks, unless there was some significant negative event to
set the market back.

CENTRAL BANKS MAY BECOME NET BUYERS: MEYER
On central bank selling Meyer said that while any sales from this sector
would dampen market sentiment, "it appears more likely that central banks may
become net buyers of gold as part of a move to diversify away from holding US
dollars which are now seen as a relatively weak currency." Meyer continued
that the central banks might prefer to diversify into euros and more broadly
into commodities as part of their asset allocation policies.
The euro continued to strengthen against the US dollar to $1.2622 at 1125
GMT Tuesday, up from $1.2570 Friday afternoon, while the greenback gained
against the Japanese yen to Yen 113.72 Tuesday, from Yen 113.90 Friday.


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