Gold perks up in Europe, eyes surging euro

US holidays sapped liquidity from the gold market yesterday, but a surging euro, which strode to fresh life highs against the dollar, took the precious metal to within less than two dollars of $400 an ounce.

The euro rose to a record high against the battered dollar yesterday, capitalising on bearish sentiment against the US currency and propelled by expiring options holdings in derivatives markets.

Dealers said the market was exceptionally quiet due to the US Thanksgiving holiday, which shut New York COMEX futures for two days.

Spot gold was quoted at $398.00/398.75 an ounce by 1535 GMT, up from $395.50/ 396.20 at the London close on Thursday. The euro was at $1.2004/08 against the dollar after touching a lifetime high of $1.2015.

Traders said the market would probably be content to wait until next week to see New York's reaction to the new highs on the euro and whether this would entice further fund buying of bullion.

"There is no real reason for gold to make new gains and anyway the US guys always bring it back to test their closing levels prior to the holidays," one trader said.

Spot gold was trading around $396.25/397.00 in Wednesday's late trade, while February gold futures closed at $398.00 an ounce, up $5.60 on the previous day.

Gold hit a fresh 7-1/2 year high at $400.55 an ounce on Wednesday, fuelled by fears of fresh terror attacks after fumes hospitalised New York City subway workers. Police later said the incident was not a terror attack.

Analysts said the euro would be the chief catalyst in taking prices higher. The bullion market had shrugged off a trail of strong US economic reports this week and continued to focus on a weaker dollar, which had fuelled demand for safe-haven gold during this year's bull market.

"Gold will continue to eye developments in currencies - (a break on the euro) through $1.20 (against the dollar) will also encourage gold to test its most recent highs. After initial resistance around 398 this would be Wednesday's top at $400.55," said Alexander Zumpfe at Dresdner Kelinwort Wasserstein in a daily report.

"If the gold price could then manage to hold above that level, fresh buying might evolve. Resistances would then be located at $406.50 and $412.00," he added.

Gold has risen by around 14 per cent since the start of 2003, helped by geopolitical tension following the US invasion of Iraq.