Gold rebounds but outlook clouded by lower investment

Gold rose on Wednesday in the international market as solid physical demand encouraged speculative buying after the previous session’s drop,while support also came from weak German economic data,which fanned speculation that the European Central Bank could cut interest rates.

Written by Reuters | London | Published: April 25, 2013 1:45 am

Gold rose on Wednesday in the international market as solid physical demand encouraged speculative buying after the previous session’s drop,while support also came from weak German economic data,which fanned speculation that the European Central Bank could cut interest rates.

Investor confidence is still reeling after bullion’s spectacular fall and outflows from exchange-traded funds show no signs of abating,although demand for gold bars and coins surged after prices plunged to their weakest in over two years on April 16. Spot gold rose 0.7 per cent to $1,421.81 an ounce,after falling for the first time in six sessions. Gold sank a combined $225 on April 12 and 15 in a sell-off that surprised investors and bulls. US gold futures for June delivery were up 0.9 per cent to $1,422.30.

European shares advanced,building on the previous session’s hefty gains,after weak German Ifo survey fuelled hopes of a European Central Bank rate cut and continued liquidity injection.

The European Central Bank meets next week and there is growing speculation that a slew of weak economic data and subdued inflation will drive it to cut rates. “You could argue that gold’s rebound today is in line with that seen in other metals and equities due to expectations of more monetary easing (after German Ifo data),” VTB Capital analyst Andrey Kryuchenkov said.

“The slightly weaker dollar is also supportive but for gold it’s difficult to assess what the drivers are after last week’s sharp sell-off and investors are still sidelined,” he added.

The dollar gave up initial gains against the euro,with traders citing talk of central bank buying euros against the US currency.

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