Jan Harvey
RTGAM



LONDON - Gold prices rose in Europe on Wednesday as a fresh push higher in the euro added to positive sentiment in the market, with technical indicators pointing to the prospect of further price gains.

Other precious metals also rose, with palladium hitting a new two-year high at $543.50 (U.S.) an ounce as investors bet supply would fail to keep pace with a demand recovery this year.

Spot gold was bid at $1,159.15 an ounce at 0927 GMT, against $1,150.15 late in New York on Tuesday. U.S. gold futures for June delivery on the COMEX division of the New York Mercantile Exchange rose $6.70 to $1,160.10 an ounce.

Gold's rise to four-month highs at the beginning of the week on the back of the euro's recovery versus the U.S. dollar has shored up the technical picture for gold, analysts said.

"Gold has achieved the level it has achieved based on fundamentals, and now the technical picture is looking good," said Peter Hillyard, head of metals sales at ANZ Bank in London.

"The $1,140-1,145 level is clearly showing itself as good support," he added. "The market is quite capable of going down another $15 to test that support, but the suggestion is that the technical picture can take it another $100 higher."

Gold was helped by weakness in the dollar, which boosts gold's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.

The U.S. dollar fell after Singapore revalued its currency and as upbeat corporate earnings lifted appetite for currencies seen as higher risk. The euro also rose, with the financial aid package for Greece unveiled at the weekend lending support.

The currency markets are eyeing U.S. data and further corporate earnings due later for direction.

"Today's calendar sees the release of the first major U.S. bank, JP Morgan, at around 12.00 London time," said Credit Agricole in a note.

"The macro news flow will be equally watched closely with this afternoon's U.S. retail sales data arguably the biggest number of the week."

Indian Demand Rises

Among other commodities, oil prices rose back above $84 a barrel as rising stock markets and a weaker dollar lifted buying. Gold tends to track crude prices, as the metal can be bought as a hedge against oil-led inflation.

Indicators of physical gold demand were also positive, with the president of the Bombay Bullion Association saying March imports to major bullion consumer India jumped to 27.7 tonnes from 4.8 tonnes a year before.

Pent-up demand and steadier prices are encouraging buying, Suresh Hundia said.

Holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust , were unchanged at record highs on Tuesday.

Among other precious metals, palladium hit another two-year high on Wednesday, as investors feared the metal's market balance will tighten as demand from carmakers is lifted by higher auto sales, and supply remains tight.

"(The) improving economic outlook and strong growth in auto sales in Asian markets support demand for palladium," said Fairfax investment bank in a note. "Around 54 per cent of metal production is used in autocatalyst production."

"Palladium is used in 90 per cent of gasoline autocatalysts and in 20 per cent of new diesel autocatalysts. Palladium's share in diesel autocatalyst production may rise to 50 per cent in years ahead, although platinum remains essential to the system."

Palladium was at $541.50 an ounce against $526, while platinum was at $1,725.50 an ounce against $1,714. Silver was bid at $18.40 an ounce against $18.18.