PRECIOUS-Gold gains from softer dollar, geopolitics

Mon Mar 21, 2011 3:38pm GMT

* Safe-haven bid helps gold but investors wary

* Palladium spec holdings drop sharply

By Amanda Cooper
REUTERS AFRICA

LONDON, March 21 (Reuters) - Gold rose for a fourth day on Monday, drawing strength from a softer dollar and from its appeal as a safe haven while Western powers carry out air strikes on Libya and Japan struggles to avert nuclear disaster.

The dollar rose against the yen for a second day but fell against a basket of major currencies to its lowest in 15 months, under pressure from the view that U.S. interest rates would not rise any time soon.

The gold price, which is set for its tenth consecutive quarterly gain, was last up 1.0 percent at $1,433.50 an ounce by 1510 GMT, while most-active U.S. April futures were up 1.1 percent at $1,431.40.

Gold has re-established its traditional negative link to the dollar since the Japanese earthquake struck ten days ago, which triggered widespread selling across financial markets.

"You can't deny the escalating Middle East problems and the oil price are all supportive factors, but I wonder whether the big jump (in the gold price) is more weaker dollar-related," said Credit Agricole analyst Robin Bhar.

"It's all contributing to the safe-haven bid, and this week is going to be important ... geopolitical risk factors are uppermost in people's minds."

Engineers at the Fukushima nuclear plant managed to restore some power to start a water pump at one of the facility's six reactors to reverse the overheating that has triggered the world's worst nuclear crisis in 25 years, while the death toll from the earthquake was estimated to be above 20,000.

Unsettling investors further was a second wave of U.N.-authorised air strikes against Libya's Muammar Gaddafi, which a government spokesman called "barbaric" and Russian Prime Minister Vladimir Putin said resembled "medieval calls for crusades".

"It's happening against a backdrop of elevated uncertainty from numerous places, which should give these safe-haven type commodities a bid," said Saxo Bank senior manager Ole Hansen.

Gold usually benefits from periods of heightened risk aversion, but since the Japanese earthquake, the price has fallen by more than 3 percent.

"As long as we have this tendency towards risk aversion in the market, gold will be struggling. It's such a high percentage of the total investment in commodities, so if there is anything to be reduced, gold is often in the firing line in that respect," Hansen added.

Oil prices rose by more than $2 a barrel after the strikes on Libya aggravated concerns about supply from the region, also helping to buoy the price of gold, which is used as a hedge against inflation.

Reflecting the pick-up late last week in investor appetite for gold, holdings of the metal in the world's largest bullion-backed exchange traded funds, the SPDR Gold Trust, rose to their highest in 5-1/2 weeks.

Holdings of gold in the six major ETFs tracked by Reuters are set for a rise by over half a million ounces this month, although in the quarter so far, holdings have fallen by 2.13 million ounces.

Spot silver climbed 2.9 percent to $36.07 an ounce, making it the top gainer in the precious metals complex. Silver prices are on track for a ninth successive quarterly gain, up by 16.1 percent in the first three months of the year.

Spot palladium was last up 1.6 percent at $740.72 an ounce, but is set for a near-8 percent decline this quarter, having come under pressure from investors concerned about the impact of the Japanese earthquake and soaring energy prices on the broader economy.

Data from the Commodity Futures Trading Commission last week showed the largest weekly decline in speculative holdings of palladium since at least 1995, bringing the net non-commercial futures position to 1.12 million ounces, its lowest since October 2009.

Spot platinum was last up 1.4 percent at $1,740.75.
(Additional reporting by Rujun Shen in Singapore; editing by Jane Baird)

© Thomson Reuters 2011 All rights reserved

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