Precious metals advance further as dollar crashes on negative data

By Clara Denina - Correspondent, (+44 (0)20 7929 6339)

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London, 25 March 2008 - Precious metals continued their upward trend in afternoon trade on Tuesday, with gold gaining over two percent and platinum some five percent, buoyed by dollar weakness after worse-than-expected US data revived concerns over the health of tyhe world's biggest economy.

However, conditions in the gold market remain uncertain in the short term, as analysts expect more profit taking to appear before market confidence returns and investors re-start to diversify away from riskier assets like equities and US treasuries.

Spot gold rose over two percent to $936.20 an ounce from Monday's close, which was however marked by the absence of London traders due to the Easter break, before settling at $934.60/935.10 an ounce, still up $17.

Prices had plunged to a one-month low of $904.50 an ounce on Thursday, when panic over the worsening crisis in the global financial sector sent all commodities markets spiralling lower. This was some 12.5 percent lower than the lifetime peak of $1,032.60 reached on March 17, when expectations of further rate cuts in the US dragged the dollar to an all-time low of $1.59 versus the euro.

"Gold has rallied on bargain hunting as goldís short-term overbought status has been corrected and some investors and speculators feel that the sell-off is overdone and the metals may have become oversold in the short term," broker Gold Investments said.

"While there may be further consolidation at these levels, gold will likely resume its upward march sooner than expected and we will likely see gold back near (nominal) record highs above $1,030 before the end of April," it added.

The dollar continued to fall on Tuesday afternoon, posting its steepest loss against the euro in two weeks, hurt by concerns about the health of the US economy and the global financial sector after US consumer confidence took an unexpectedly sharp hit in March, dropping to a five-year low, while US home prices dropped further last month and Merrill Lynch was rumoured to have more writedowns to disclose.

Moreover, the New York-based Conference Board also showed that consumers' outlook for the next six months hit its lowest for 35 years, down 10 points to 47.90.

A weaker dollar makes gold cheaper for investors holding other currencies and often raises the metalís appeal as an alternative investment, due to the strategic inverse relationship between the yellow metal and the US dollar.

Meanwhile, crude oil, another driver of gold sentiment, fell for a fourth day in New York on concern the slowing US economy will curb demand in the world's largest energy user, but held ground above $100 a barrel today.

Oil has fallen 10 percent from last week's record of $111.80 a barrel, signaling declining inflation risks. Gold is often seen as a good hedge against oil-led inflation.


Platinum continued to forge higher during afternoon trade on Tuesday, rising $96, or 5.1 percent, to $1,976 an ounce, after last weekís washout saw the metal plummeting to a six-week low of $1,800 an ounce on Thursday.

Platinum has fallen some 22 percent since hitting a lifetime high of $2,300 an ounce on March 4 on the back of severe power outages in the worldís biggest producer South Africa, but expectations of a substantial supply deficit this year, coupled with strong investment demand, will continue underpin prices.

Silver continued to track goldís movements and rose 73 cents, or four percent, to $17.83 an ounce at one stage, before settling at $17.74/17.78 an ounce. It had dropped to a six-week low of $16.64 an ounce on Thursday.

Elsewhere, palladium rose $20 to $448 an ounce at one point, after falling to its worst from February 7 at $416 an ounce on Thursday. It then settled at $444/450 an ounce.
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