London gold fixed at $257 a troy ounce in the morning, up on Monday afternoon's $256.50, amid thin volumes.

Implied lease rates for six-month gold rose to 4.12 per cent, up from Monday's 4.04 per cent, making forward sales by miners and investors less profitable.

"It's becoming very uncomfortable. If you want to sell one year forward, two weeks ago you were looking at a $9.50 premium over spot. Now it's only $5.00," said one London dealer.

Bullion banks structure miners' forward sales by borrowing gold from central banks to profit from the discount between lending rates for gold and those for money.

"A lot of miners are on a floating rate and so it's costing them more to run their hedge," the dealer said, adding that rate tightness could push spot prices through their range ceiling.

"There are stops building above $259.00. We could be off to the races if we get through that," he said.

Others disagreed, seeing lease rate tightness on its own as unlikely to boost prices.

"There's also a lot of talk about the forward side, with people thinking that might be bullish for the market. I'm not so sure," a Swiss dealer said.

"We expect gold to trade within its recent range of $252-$258 over August with physical demand lending support," NM Rothschild analyst Helen McCaffrey said in a report.

"However, with thin market conditions expected to prevail, any further activity in the forward market could result in sharp price movements within this range," she added.

South Africa's index jumped higher,continuing the run in gold equity indices around the world since their mid-July troughs, when bullion hit 20-year lows below $253.00.

Investors often prefer gold equities to the metal itself, banking on the gearing effect of an anticipated bullion price rise to provide larger gains.

Spot gold was last unchanged versus Monday's New York close of $256.80/$257.30 and silver was two cents down at $5.29/$5.31.

Platinum was last $3.00 lower at $349.00/$351.00 and palladium was $5.00 down at $338.00/$343.00.

Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.