LONDON (Thomson Financial) - Gold was lower in early trade, dropping away from the key 700 usd resistance level, as Asian stocks slid following the release of China’s GDP data and the dollar staged a recovery from its recent lows.

However, analysts remain confident that the precious metal will push higher on the back of continued longer term weakness in the US currency, with 700 usd still seen as a viable barrier to break.

At 10.39 am, spot gold was at 687.4 usd an ounce, weakening slightly from 688.75 usd in late New York trade yesterday.

Shares across Asia closed lower yesterday, recording their sharpest falls since the sell-off in Asian stocks in February, which sparked a global slump as fears mounted that China may tighten monetary policy.

“This is the sharpest fall in stocks since February, and gold went down with the markets then. It seems the same thing is happening now,” said Adrian Ash, analyst at BullionVault.com.

China released data showing GDP growth accelerated 11.1 pct year-on-year to 5.0287 trln yuan in the first quarter against 10.7 pct in 2006, while the consumer price index rose 2.7 pct year-on-year in the same period against 1.2 pct last year.

Speculation that China would hike interest rates in response to the data pushed Tokyo shares sharply lower, depressing markets elsewhere in east Asia and sparking fears of a plunge in stock markets worldwide.

Gold prices were also pressured by a resurgence in the US dollar, which recovered slightly from its recent sharp falls against the major currencies.

Turmoil in the Asian market has blunted investors’ appetite for risk, making the dollar a more attractive investment, while hopes abound that US manufacturing data released later today will be positive.

Nonetheless analysts remain confident that the dip in gold prices will be a temporary one.

“Some weak longs have now been stripped out of the market, with which we could not get higher,” said Gerry Schubert, an analyst at Fortis. “We can now crack the 690 usd level and higher.”

Gold has underperformed oil and base metals in the recent commodities boom, said Ross Norman, an analyst at TheBullionDesk.com, and is due for a resurgence, with dollar weakness expected to persist.

“In the big picture the fundamentals remain firm,” he said. “I wouldn’t discount a test of the 700 usd level.”

Platinum meanwhile climbed to a five-month high ahead of the launch of a new exchange-traded fund by Zurich Kantonalbank on May 10.

ETFs trade commodity futures, backing up stock bought on paper with actual physical stock. As a result, the launch of an ETF often squeezes the market as it eats up the amount of physical stock available.

“In a market already tight on liquidity, this ETF would exacerbate the supply situation and (is) therefore likely to force a squeeze on prices,” noted analysts at Standard Bank.

Platinum hit 1,303 usd per ounce against 1,291 in late New York trade yesterday, its highest level since it reached 1,390 usd in November.

Its sister metal palladium posted sharp gains in sympathy to trade at 381 usd, up from 378 usd yesterday. Silver meanwhile softened slightly to 13.91 usd an ounce from 13.94 usd.

jan.harvey@thomson.com

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