Thu May 25, 2006 4:37 PM ET
LONDON/NEW YORK - Gold rose 1.4 percent on Thursday, with bargain-hunters and physical buyers entering the market on dollar weakness a day after gold tumbled nearly 5 percent, dealers said.
But players remained wary after recent volatile price moves and looked to other markets for direction.
"The correction has been a reality check and the bull market is very much still intact. We may be somewhat more sanguine about the upward price levels," said a precious metals analyst.
Spot gold
Gold got some support from the dollar. The greenback slipped against the euro and yen as data showed U.S. economic growth was slightly slower than expected in the first three months of the year.
"The dollar slipping was one piece of it," said Bernard Hunter, a director at ScotiaMocatta in Toronto. "But it also was a relief-rally" after the cross-commodities sell-off over the last week.
"Given the drop that we'd seen over the last few days, it was not really surprising to see a little consolidation and take back some of those losses, really," said Hunter.
The metal on Wednesday fell about 5 percent to $637.40, as fund selling and profit-taking pushed it away from a 26-year high of $730 hit on May 12.
"When the price falls by nearly $100, you have to think it is going to cause some people to question the bullish assumption. The sentiment that it can only go up has been damaged," said Matthew Turner, analyst at Virtual Metals.
But gold had an upward bias in the short term, he added.
"We believe that gold needs to find a range and that volatility must decline before investors and physical customers regain confidence to buy the metal," said John Reade, precious metals analyst at UBS Investment Bank.
Barclays Capital said in a note that U.S.-based streetTRACKS fund attracted 1.86 tonnes of gold on Wednesday, marking the first inflow into the exchange-traded fund since late April.
Over the past month, about 15 tonnes had been withdrawn from the product, which tracks prices of the metal. Such gold funds, traded on stock exchanges, have accumulated about 480 tonnes of gold since their launch about three years ago.
SILVER GAINS
In other precious metals, silver
UBS noted a drop of 2.5 million ounces of silver on Wednesday from Barclays' exchange traded fund (ETF) in the U.S.
"We remain positive about the outlook for the silver ETF because we do not believe that metal prices have peaked. That should happen, we believe, sometime in 2007. But for the ETF to attract new inflows, metals need to stop falling," UBS said.
Platinum's fall below $1,300 an ounce sparked buying interest from jewelers in China, which accounts for half of global platinum jewelry demand.
Platinum
"I think the demand is quite steady in China, but there's also a possibility that some jewelers are using old stocks," said a dealer in Hong Kong.
Platinum, which also is used to clean car exhaust emissions, has risen 37 percent this year as investors diversified into precious metals on tension in the Middle East, worries about rising oil prices and the volatile dollar.
Dealers said sentiment toward the metal remained firm after Johnson Matthey, the world's top platinum distributor, said last week the market was likely to remain in deficit for the eighth year in a row in 2006.
Palladium
