Gold holds steady on US data & Chinese central bank news

Spot gold prices continued to hold steady from the overnight dip as New York opened for business on Wednesday.

As the Dollar pushed the Euro back from the brink of a new lifetime high above $1.3670, physical gold bullion traded at $686 per ounce.

That was $3 up from the one-week low hit early in Asia.

"Physical activity is strong in the mornings and has offset long liquidation in the afternoons," reckons Frederic Panizzutti, metals analyst at MKS Finance.

"There is support from the [weak] Dollar and physical demand is likely to remain strong, but the market needs a catalyst to move prices much higher."

Yesterday saw the Dollar dip on weak US housing data. New figures released today show sales of new houses falling dramatically below expectations. (Click here to read the long-term forecast for US real estate and interest rates...)

By mid-afternoon in London, Sterling continued to trade around a 25-year high of $2.0030 on stronger-than-expected GDP data for the United Kingdom.

That capped the Sterling price of gold at £342.50 per ounce.

But the gold price in Euros rose above €503 per ounce as Frankfurt moved into the afternoon session.

Last week, according to the European Central Bank, two members of the Central Bank Gold Agreement sold 17 tonnes of gold between them.

Significantly greater than recent weeks, those sales still leave European governments on track to miss their 2006-07 quota of 500 tonnes sold in the year to Sept.

The biggest central-bank news for gold investors today, however, is the report that Xiang Junbo, vice governor of the People's Bank of China, told a conference yesterday that China should increase its official gold holdings as a way of diversifying away from the Dollar.

Japan cut its holdings of US government bonds by 10% in the two years to Jan. '07, down to $627 billion.

Now Beijing – owner of $1 trillion in US paper – should "appropriately" broaden its foreign reserves with gold, oil and base metals as well as other overseas investments, says Xiang.

He claimed to be speaking in a personal capacity. But his comments "have potential importance for gold," notes HSBC, the giant UK bank, today.

(For more on why Asian central banks could push gold prices much higher, read on here...)

Meantime in India – the world's largest market for private gold investment - "we had the Indian marriage season on April 19 and 20, and the reports I'm getting are that demand was a bit higher this year," says Patrick Michaels, manager of $24 million in precious metals in Zurich.

"Gold will get support since people see it as a reliable place to park their assets instead of all the paper currencies."

Last week's Akshaya Thrithiya celebrations in southern India saw gold sales of between 55 and 60 tonnes, according to Jill Leyland of the World Gold Council, up from 35 tonnes in April last year.

"The main driver is the belief that it is auspicious to purchase gold on that day," says Leyland, "fostered by heavy promotion and supported by the current strength of the Indian economy.

"The wedding season will be in full throttle in May."

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