Gold edges up after 2-day drop in pre-holiday trade

[SINGAPORE] Gold rose in thin pre-holiday trade on Thursday, after two days of losses, on a softer dollar and as oil prices extended a recovery from multi-year lows.

Spot gold rose 0.3 per cent to US$1,073.50 an ounce by 0358 GMT, after losing 0.7 per cent in the last two sessions.

Many financial centres around the world will shut early on Thursday and stay closed on Friday for the Christmas holidays. Some will remain shut on Monday.

"Gold prices will be determined more by trading volume, than any monetary or fundamental development over the holiday period," HSBC analyst James Steel said. "Low trading volume leaves prices open to sharp movements one way or another on relatively little buying or selling." "If oil continues to rally we think this would eventually feed into real gains for gold prices," he said.

Gold is positively correlated to oil as the metal is seen as a hedge against oil-led inflation.

US crude prices rose for a fourth straight session on Thursday, after hitting their lowest since early 2009 on Monday. The benchmark is set for a more than 8 per cent weekly gain in the lead-up to Christmas as the US market tightened on falling supplies and looming exports.

The dollar index, a measure of the greenback's strength against a basket of major currencies, slipped on Thursday for a fourth session out of five after recent mixed US data.

New orders for US manufactured capital goods fell in November and the prior month's increase was revised sharply lower, while other data showed consumer sentiment at a five-month high in December and personal income rising for an eighth straight month in November.

A softer greenback boosts demand for dollar-denominated commodities such as gold.

However, the outlook for gold remains largely bearish with many predicting a drop below US$1,000 in the next few months.

Bullion prices have shed 9 per cent so far this year, a third year of losses, mostly due to expectations the US Federal Reserve would raise interest rates, which it did this month.

With the first US rate increase in nearly a decade out of the way, the focus is now on the pace of future hikes.

Investors believe higher rates would dent demand for non-interest paying gold.

REUTERS