Gold eases as euro dips

Gold eased yesterday, taking a breather from the week's march higher as the euro dipped and other assets rose, but stayed on track for its biggest two-week rise in two months as investors returned to the market after last month's price drop. Spot gold was down 0.5 per cent at $1,641.80 an ounce at 12.40pm GMT, while US gold futures for February delivery were down $4.50 an ounce at $1,643.20. Cash gold prices have risen 5 per cent so far this year despite a firmer tone to the dollar, as investors bought back into the market after gold's 10 per cent price drop in December. "I'm always a bit suspicious of interpreting too much of price action in the first couple of weeks of a new year. It's not typically very fundamental," said Deutsche Bank analyst Michael Lewis. "It could well be valuational momentum that is driving these moves rather than anything else." Long-term positive In the longer term, however, he said indications were positive for gold. "We have central bank diversification, which we think is a bigger flow story than exchange-traded fund buying," he said. "We're also looking for dollar weakness to come back. "We still like the gold story because of negative real interest rates." Goldman Sachs also said it expects fresh gains in gold this year due to the depressed real interest rate environment. It has a 12-month view on gold of $1,940 an ounce. On Thursday, the European Central Bank said its flood of cheap three-year loans was helping banks and Eurozone morale. "Interest rates in the Eurozone are unlikely to go higher... keeping the euro area yields depressed," said VTB Capital in a note. "Additional liquidity and accommodative monetary policy will cause even more players to seek real value in precious metals as inflation expectations also start to shift, provided policy measures are successful and growth starts recovering." Gold buying in China is likely to ease off as the Lunar New Year celebrations get underway, however. "We would expect that physical interest will have trailed off significantly out of China by the latter half of (this) week," said UBS. "Nonetheless it is important to highlight that the market doesn't have the same expectations for Chinese gold imports in the lead-up to the holidays, compared to those seen last year." Margins raised ahead of Lunar New Year In China, the Shanghai Gold Exchange said yesterday it will temporarily raise margins and daily trading limits for its gold and silver forward contracts on Friday ahead of the week-long Lunar New Year holiday. Average turnover, excluding futures, on the SGE in the first fortnight of this month has been 19 per cent higher than in the two weeks preceding Chinese New Year in 2011, Rhona O'Connell of metals consultancy Thomson Reuters GFMS said.