"Tug of war" in gold as Asia buys physical and ETF investors sell

U.S. dollar prices to buy gold hovered around $1,575 per ounce Wednesday morning in London, in line with last week's close, as dealers in Asia reported an increase in demand for physical bullion, in contrast with exchange traded funds, which have continued to see selling, in what one analyst calls a "tug of war" between physical buying and ETF selling.

"Short-term, gold should drift lower to the short-term support line at $1,569/65 or even to the previous low at $1,555," say technical analysts at Societe Generale.

"Initial support is at $1,564.88," adds UBS. "A break below [that level] would expose $1,556.50, the June 28 low and then $1533.70, the May 16, 2012 low."

Gold in Sterling hovered just below £1,045 an ounce for most of this morning, slightly down on the week, while gold in Euros stayed below €1,210 an ounce.

Silver meantime hovered around $28.70 an ounce, very slightly up on the week, while other commodities were similarly flat. Stock markets extended yesterday's gains, in contrast with major government bond prices which fell.

"We remain somewhat cautious on gold and silver," says INTL FCStone analyst Ed Meir. "They could be hit by a downward reversal if and when markets start to decouple from the surging equity markets."

Stock markets in Europe extended yesterday's gains this morning after several major indices closed at multi-year highs Tuesday. 

In London, the FTSE 100 posted its highest close since January 2008 yesterday, while over in the U.S. the Dow saw a new all-time record close and the S&P 500 closed at its highest level since Oct. 31, 2007, less than 2% off its all-time record close set earlier that month.

Yesterday saw the release of service sector purchasing managers' index data for a number of economies, which indicated better-than-expected conditions in the U.S., U.K. and Eurozone.

"Looking forward," says a note from Credit Agricole, "[stock market] sentiment could get further support from data this week as the {Federal Reserve's] Beige Book today will probably show that employment continued to grow ahead of Friday's jobs report."

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