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Gold Swings Below 3-Week High as Investors Weigh Dollar, Demand

Jan. 6 (Bloomberg) -- Gold swung between gains and losses below the highest price in almost three weeks in New York as investors weighed signs of increased physical demand against the outlook for a strengthening dollar as the U.S. economy improves.

Bullion futures rallied last week by the most since October on signs of stronger demand in China, which probably overtook India as the largest user last year. The premium for immediate delivery in China was about $22.35 an ounce today, from $15.87 on Jan. 3, and volumes for the benchmark contract on the Shanghai Gold Exchange climbed to the highest since May.

Gold slid 28 percent last year as investors lost faith in the metal as a store of value. Data today may show U.S. services and factory orders climbed, supporting the Federal Reserve’s Dec. 18 decision to reduce its monthly bond buying to $75 billion from $85 billion this month. The dollar increased 2.8 percent against a basket of 10 major currencies since the October low.

“It will be interesting to see whether physical demand continues to be as strong as it was in the past few sessions, especially noting that the metal has now rallied quite a bit,” Abhishek Chinchalkar, an analyst at Mumbai-based AnandRathi Commodities Ltd., said today in a report. “It would also be interesting to see whether gold continues to defy the odds and gain in an environment of a strengthening dollar.”

Bullion for February delivery lost 0.1 percent to $1,237.20 an ounce by 7:42 a.m. on the Comex in New York. Prices fell as much as 0.5 percent and rose as much as 0.6 percent to $1,245.70 today, the highest since Dec. 17. Futures trading volume was 6.5 percent above the average for the past 100 days for this time of day, data compiled by Bloomberg showed. Gold for immediate delivery added 0.1 percent to $1,237.82 in London.

ETP Holdings

Holdings in gold-backed exchange-traded products fell 3.3 metric tons on Jan. 3 to 1,755.6 tons, the lowest since October 2009, data compiled by Bloomberg show. ETP sales will “stabilize” in the coming year, while net gold purchases by central banks and delays to mining projects may push prices to about $1,285 by the end of the year, JPMorgan Chase & Co. wrote in a Jan. 3 report.

Silver futures for March delivery fell 0.8 percent to $20.05 an ounce in New York. Platinum for April delivery slipped 0.6 percent to $1,405.40 an ounce. Palladium futures for March delivery added 0.2 percent to $732.30 an ounce. It reached $735.90 today, the highest price since Dec. 12.

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