Gold seeks direction as traders hug the sidelines

London (Platts)--23Jun2006

Gold is trading a $580-600/oz range Friday morning as the precious metal
gyrates on the back of sentiment which ebbs and flows.
US economic data as well as speculation over the outcome of the next
Federal Open Market Committee dictates in which direction gold moves. Other
fundamental influences remain the machination of the oil price and the return
of some physical demand. Gold was bid at $583.65/oz at 0808 GMT, little
changed on its spot close in New York at $582.30/oz. Traders made an attempt
at running gold up to $600/oz but the short-lived move stalled at $595/oz on a
lack of follow through buying, a Continental Europe-based trader noted Friday.
"We were trying the downside and it didn't work so we'll try the upside
again," he said, adding: "We are seeing a very unusual situation where either
everything like equities, commodities and energy are going up or everything is
going lower." He said that gold continues to be "dominated by the funds and
electronic traded funds which have been busy this week."
However, while physical demand has increased this week, the trader
suggested that it was replacement buying rather than fresh stock building.
Standard Bank notes Friday that uncertainty among trader has caused many to
head for the sidelines. "With the US dollar exhibiting resilient strength,
this encouraged a fresh wave of sellers which brought about some stop-loss
selling as the market was largely clueless as to gold's next direction. This
uncertainty had the added effect of draining liquidity as cautious
participants remained sidelined as they attempt to make sense of the current
confusing trend."
This remains the prognosis for the day with May durable goods data due
for release later in the afternoon the only prospect of fresh direction. The
trader suggests that the first support level can be found at $580/oz but
broadly gold is trading in a $550-600/oz range.
Standard Bank suggests that "Some interim volatility could be expected as
the market searches for clarification as to the Federal Reserve's interest
rate outlook in the coming weeks, with higher interest rates reducing gold's
allure as an alternative asset class. In the longer-term, geopolitical
concerns of Iran, Iraq and North Korea against the US should provide a certain
degree of safe-haven allure."

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