The market is awaiting fresh direction from the crude oil market, which rose ahead of an expected production cut from the Organization of the Petroleum Exporting Countries (OPEC).

Spot gold was quoted at $855.60/857.60 an ounce at 1024 GMT, little changed from $857.35 an ounce late in New York on Tuesday. U.S. gold futures for February delivery were up $14.70 at $857.40.

Gold is likely to consolidate after recent sharp moves, analysts said.

“We have jumped so much in a relatively short period of time without any major changes on the fundamental side,” said Wolfgang Wrzesniok-Rossbach, the head of sales at Heraeus.

While gold was benefiting from dollar weakness and safe-haven buying as a result of the financial crisis, physical demand for bullion was tailing off as prices rose, Wrzesniok-Rossbach said.

“Fundamentally the situation might not be 100 percent positive, but everything related to the financial crisis is positive for gold.”

Gold climbed in late New York trade on Tuesday after the Fed said it was cutting rates to between zero and 0.25 percent, knocking the dollar lower and prompting further rate cuts from Hong Kong and Kuwait.

The dollar hit a 2-1/2 month low against the euro on Wednesday after the cut.

However, “technical momentum signals are warning of an upside correction for the greenback today,” said Standard Bank analyst Walter de Wet. “This could restrain precious metals.”

The other main external driver of gold, crude oil prices, were broadly supportive, ticking up $1 a barrel ahead of an OPEC decision on production quotas.

The cartel is expected to cut output by some 2 million barrels to shore up the falling oil price, which has dropped around $100 a barrel from the highs it hit earlier this year.

DEMAND MIXED

Physical demand for gold was mixed, with traders reporting falling interest in gold coins and bars in Europe and Indian buyers said to be staying away until prices fall.

However, investment demand for gold-backed exchange-traded funds was firm. The world’s largest bullion-backed ETF, the SPDR Gold Trust , said its gold holdings rose 3.98 tonnes on Dec. 16 and are up 1 percent or 7 tonnes since Friday.

Among other precious metals, platinum and palladium were little changed. The two metals, which are primarily used to make catalytic converters, have fallen sharply in recent months on fears demand would suffer from a slowdown in car sales.

Platinum is now trading close to parity with gold, a situation last seen in 1996. However, the metal is likely to recover next year, analysts said.

“Current price levels for platinum group metals are not sustainable for many South African producers unless there is a sharp weakening of the rand,” said Fairfax analyst Marc Elliott.

“Consequently the eventual recovery of the automotive market appears likely to prompt a shortage that should lift PGM prices perhaps to levels seen earlier this year.”

“However, for the next few months we see little reason for a substantial improvement, unless some major production cuts (or) disruptions take place,” he added.

Spot platinum was quoted at $856/866 an ounce against $860.50 late in New York on Tuesday, while palladium was at $176.50/181.50 an ounce against $178.

Silver fell to $10.98/11.06 an ounce from $11.21.

By Jan Harvey
LONDON, Dec 17 (Reuters)

From November through March U.S. stocks (and most global equity markets) suffered a string of five-straight monthly declines. That’s a very rare occurrence that has only happened on a handful of occasions in the past 40 years.

Sure enough, April saw a sharp reversal of the five-month downtrend. The Dow Jones Industrial Average had fallen over 11% at the March low. But the Dow got up off the mat in April and rose 4.5%. The Dow wasn’t alone. In fact, international stock markets pulled off much more dramatic reversals.

Japan is perhaps the most striking turnaround. I’ve been bullish on Japan since last year… and had been proven way too early through March. But Japan rallied strongly last month – soaring 11% in April alone – it’s biggest single-month gain since 1995! In spite of this rally, Japan remains one of the world’s most undervalued major markets, but now it looks like global investors are catching on.

Hong Kong, another one of my favorite overseas markets, also pulled off a major turnaround in April. After dropping -18% in the first quarter of 2008, the Hang Seng Index jumped 13% last month.

Taiwan, another favorite, rose 4% in April. Mainland China bounced back too – 6.3% last month. But Shanghai shares still have lots of “heavy lifting” ahead -they’re still down 30% year to date.

Perhaps the biggest surprise was commodities. Gold and crude oil rallied pretty much in tandem through the end of 2007 and early 2008. Oil was up another 12% in April – adding to gains of nearly 20% year to date.

The yellow metal however declined nearly 6% last month. That’s gold’s second consecutive monthly decline – perhaps this precious metal will go for five in a row too!

Of course last month’s market action could prove very fleeting indeed. And I doubt that the ultimate “bottom” of this bear market has yet been reached. However, with such broad-based strength in equity markets around the world, we may be in for a decent rally that has some legs.

On Wednesday, the Fed cut rates again as I expected to 2%. The financial media seems convinced that the Fed intends to “pause” sometime soon. That has helped the beleaguered U.S. dollar (talk about a bear market!) to stabilize somewhat.

If the buck can stage a more convincing reversal of fortune at this point, I would expect commodities to correct further, while global stocks (particularly emerging markets) should continue to get a boost. Stay tuned…MIKE BURNICK, Senior Editor & Global Markets Analyst