Daily Gold Update

Source: Reuters

Washington— Gold futures in New York settled higher Wednesday as a weaker dollar prompted investor buying after a bout of speculative liquidation pushed precious metals prices lower this week, dealers said.

Silver prices surged to a three-week high, capitalizing on gold�s gain and the stronger euro in the afternoon.

June delivery gold on the New York Mercantile Exchange�s COMEX division was up $2.10 at $421.90 an ounce, which was its highest close since last Thursday, after trading from $418.80 to $422.

Gold advanced as the dollar fell after the U.S. government reported U.S. core inflation was weaker than expected in April, leading investors to view the Federal Reserve as less likely to implement aggressive interest rate hikes.

�Gold�s simply looking at the euro/dollar,� a desk trader in New York said, adding the metal should continue to move in opposition to the U.S. currency.

A lower greenback tends to make dollar-priced commodities more attractive to investors.

�The big story for financial markets today was the Hong Kong Monetary Authority news, and whether that�s a precursor to what China might do,� he added.

Markets were caught off guard Wednesday after HKMA said it would tweak the territory�s currency peg to fend off upward pressure on the Hong Kong dollar from speculation over possible revaluation of the Chinese yuan.

Some in the market felt this might be a prelude to Beijing loosening controls on the currency long pegged to the dollar.

Estimated COMEX gold volume was a busy 70,000 contracts, versus Tuesday�s count of 47,500. Open interest rose 358 lots to 274,382 lots as of May 17.

Some analysts felt gold could slide further going into the summer months, however, hit by a drop in physical interest.

Merrill Lynch said weakness at the end of the March-May wedding season in India and less European fabrication demand could push gold down to the $410-$400 range by June or July.

�In 15 of the past 17 years, the gold price has formed a trough in early summer,� it said in its weekly Global Precious Metals report. But, the lows are usually followed by sharp rebounds of somewhere around 10 percent from early summer to mid-fall, on renewed fabrication demand, it added.

The core consumer price index, which strips out volatile food and energy prices, was flat in April, compared with a 0.4 percent increase in March, confounding expectations for a rise of 0.2 percent. Headline CPI for April rose 0.5 percent, against 0.6 percent in March. Analysts had expected a rise of 0.4 percent.

Spot gold climbed to $421.30/422.00 an ounce from Tuesday�s New York late quote at $419.80/0.50. Wednesday�s afternoon fix in London was at $419.75.

July silver rose 16.0 cents to $7.205 an ounce�its strongest finish since April 26, after trading $7.03-$7.235. Spot hit $7.18/21, up from $7.00/03 previously. The fix was at $7.02.

On the board at NYMEX, July platinum was up 70 cents at $862.90 an ounce. Spot platinum was quoted at $860/863.

June palladium rose $1.90 to $192 an ounce. Spot edged up to $190/193.