Precious Metals Follow Equities Higher

Gold managed to close slightly higher, buoyed by a weaker dollar as investors tracked a rally on Wall Street, but the metal gave back much of its earlier gains on reports of good growth in the US service-sector companies. Gold is trading this morning at 1577.80 gaining 2.90$ as market sentiment from Tuesday flows to the Asian session. Silver followed cues from gold to climb to trade at 28.745 gaining 14 cents. On Wall Street the Dow Jones broke record highs reaching above levels before the financial crisis.

Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, declined to 1,244.86 tons, as on March 5. While silver holdings of ishares silver trust, the largest ETF backed by the metal, increased to 10,646.48 tons, as on March 4.

The US dollar gained against the euro and pared losses against the yen, as the equity index the Dow Jones Industrial Average of blue-chip stocks hit record high and supported by a strong US economic data. The US dollar index, a measure of the greenback’s moves against six major global currencies, fell to 82.078.

Gold will likely trade range-bound on Wednesday, caught between rising physical demand and improving equities market. The equities market is seeing a rebound on hopes of economic recovery. This could sway investors away from gold as their risk appetite increases. However, the current lows are also attracting physical buying, especially in India and China.  Hopes of banks continuing to inject money to buoy the economy is also holding up the yellow metal.

Late last week Fed Chairman Bernanke assured traders that the Fed would continue its current monetary easing until unemployment was down. This will help offset negative effects of budget cuts that kicked on late Friday after missing the March 1^st deadline.

Gold prices rose yesterday, snapping four days of losses, as expectations that central banks would opt to maintain ultra-loose monetary policy this week helped push stocks to a two-year high and weighed on the dollar. Successive rounds of quantitative easing and similar monetary stimulus measures have kept liquidity high and interest rates low in the US, the euro zone and Japan in recent years, fuelling a rally in gold prices. Hopes that stimulus would continue were boosted by comments from Federal Reserve official Janet Yellen late on Monday, and by expectations new economic forecasts in the euro zone could open the way to looser policy from the ECB.

Gold paired gains as demand for safe havens was sapped as the Dow Jones tore to a record high as economic optimism fueled a rally in equities. Tuesday’s rise snapped bullion’s four-day losing streak. Fears of fund liquidation and losses in the holdings of gold-backed exchange-traded funds have dented sentiment. The metal was initially supported by inflation concerns after China said it planned to increase spending and set its 2013 growth target at 7.5 percent. But selling was triggered by hopes of a strengthening U.S. economic outlook and the Dow’s surge to an all-time high. Appetite for gold-backed exchange-traded funds remained soft.