Thursday, Jan 05, 2012

--Spot gold flat in Europe after two-week high

--In euro terms, market is firmly higher; trading at three-week highs

--Gains in euro terms suggest safe-haven bid returning

--Prices seen supported by Iran tensions, Asian demand

--Other precious metals lower as euro, equities soften 


 
   By Rhiannon Hoyle 
   Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--The gold price is flat in Europe Thursday after earlier posting a two-week high on growing geopolitical tensions between Iran and the West and improved physical demand out of Asia.

Still, while in dollar terms prices have pulled back from their session high, the physical metal when calculated in euros remains strong.

In euro terms, spot gold is trading at its highest level in three weeks, showing the market "to be living up more to its status as a safe haven again," said Commerzbank analysts in a note.

Analysts and traders closely watch the euro-denominated gold trade as an indicator of trends in the metal itself, rather than movements in the dollar, with which the market tends to have a negative correlation.

At 1126 GMT, spot gold in euros traded at EUR1,255.56 a troy ounce, up 0.9%, or EUR10.62 on the day. The market is at its highest since Dec. 14.

Spot gold in dollars was up 52 cents, or 0.03%, at $1,612.42/oz. It had earlier risen to a two-week high of $1,625.77/oz.

Other precious metals are lower in Europe Thursday, tracking the euro and equity markets into the red. Spot silver was down 0.4% at $29.048/oz, spot platinum was 0.1% lower at $1,412.50/oz and spot palladium had fallen 1.2% to $639/oz.

Base metals on the London Metal Exchange were also lower.

"One likely reason for the [gold] price rise is the geopolitical risks, as tensions between the Western world and Iran escalate. What is more, market players are unable to shake free of the sovereign debt crisis in the euro zone," the bank said in a note.

Crude oil futures have posted strong gains in recent sessions as traders fretted over continued tensions between Iran and the West. Reports that European Union leaders agreed in principle to an embargo on Iranian oil imports were a particular boost for prices Wednesday.

While gold traditionally shares a positive correlation with crude oil, bullion is also widely viewed as an alternative store of value in times of political or economic risk.

"And any escalation of the situation with Iran may help to encourage the safe-haven bid further," said a metals trader.

Demand in Asia has also improved, with firm Chinese buying reported ahead of the Lunar New Year on Jan. 23. Indian demand is recovering as well, after a weak end to 2011 as domestic prices soared.

HSBC analyst James Steel said, despite recent softness in the metal's price, the gold market remains well-supported.

While HSBC has lowered its gold price forecasts for 2012 and 2013 after the market weakened significantly in the final quarter of last year, Steel said the bank remains bullish on the yellow metal as a poor global economic outlook and sovereign debt troubles spur fresh demand for bullion as an alternative store of value.

The bank now expects gold to average $1,850 a troy ounce this year, down from an earlier forecast of $2,025/oz. HSBC has also reduced its average 2013 forecast to $1,800/oz, from $1,850/oz.

"The HSBC economics team has highlighted likely global deflationary pressures due to contractions in the banking industry and deleveraging, which we believe may limit gold advances, and this helps explain the reductions in our forecasts," Steel said.

"[But] we believe that gold prices will recover in 2012, and we maintain our bullish posture," he added.

-By Rhiannon Hoyle, Dow Jones Newswires; +44 (0)20 7842 9405; rhiannon.hoyle@dowjones.com

(END) Dow Jones Newswires

January 05, 2012 06:56 ET (11:56 GMT)