Gold fell by more than 1 percent on Monday,
following its best weekly performance in a month, after Japan's
intervention in the currency market triggered a spike in the dollar,
which was already benefiting from ongoing concern about the euro zone.
Japan intervened unilaterally in
the foreign exchange market on Monday to curb the yen's strength,
sending the dollar up more than 1 percent against a basket of
currencies.
A stronger US currency makes
dollar-denominated commodities more expensive for non-US buyers, pushing
down the price of silver, copper and crude oil.
This week is also dominated by
major US data, including monthly employment and several measures of
manufacturing, along with Chinese factory activity, which also kept
investors cautious.
Spot gold was last down by 1.1
percent at $1,720.20 an ounce by 13:00 SA time, having risen 6.0 percent
last week and set for a 5.8 percent rise this month, following the
near-11 percent slide seen in September, when prices hit a record
$1,920.30.
“I didn't buy the story last week
of gold trading like a safe-haven again. But gold often trades in line
with the other commodities .with(quantitative easing) and inflation and
those kinds of things obviously supporting the price of both,” said
Mitsubishi analyst Matthew Turner.
“This
week, it's all about the economic data and central bank policy meetings.
There's no real sense of direction, except for the fact that it is
trading more like a risk asset.”
The US Federal Reserve and the European Central Bank meet this week to discuss monetary policy.
The correlation between gold and
the European equity market rose to a multi-month high of nearly 50
percent, meaning gold was more likely to move in tandem with stocks,
while gold's negative correlation to the dollar strengthened to -40
percent on Monday from around -30 percent last week.
“The huge spike in the dollar is
pressuring gold prices,” said Ong Yi Ling, an analyst at Phillip
Futures. “But so long as gold stays above $1,700, the sentiment should
remain pretty bullish.”
BUYERS CAUTIOUS
Buyers in the physical market were
on the sidelines, which led to gold bar premiums easing to a range
between $1 to $1.50 an ounce over spot prices, from about $1.50 last
week.
“We saw
some light buying from Thailand,” said a Singapore-based dealer. “If
prices drop below $1,700, physical buyers are expected to return.”
Investment interest in gold has
been rekindled in recent weeks after euro zone leaders progressed
towards an agreement to solve the bloc's debt crisis, albeit
painstakingly, sending prices up 6 percent last week.
Last week, money managers raised
their bullish bets in gold futures and options to the highest in four
weeks, data from the US Commodity Futures Trading Commission data
showed.
SPDR Gold Trust , the world's
largest gold-backed exchange-traded fund, registered an inflow of 16.04
tonnes last week and 11.62 tonnes since the end of September, after a
small outflow of 0.38 tonnes in September.
In the days ahead, investors will
be watching a policy meeting of the US Federal Reserve, as well as a key
Group of 20 meeting for coordinated efforts or pledges to help
stabilise world financial markets.
In other precious metals, platinum
and palladium were both down by some 2.0 percent on the day. Key this
week for both metals will be gauges of global factory activity, with US
monthly vehicle sales offering insight into the health of a key source
of demand for platinum group metals.
UBS
strategist Edel Tully said the bank's auto analysts expected monthly US
vehicles to pick up thanks to credit availability, improving inventories
as well as other purchase incentives.
“Our conversations with producers
and end-users in recent weeks have revealed end-user supply contracts
remain unchanged, with metal shipments still being comfortably absorbed.
The price decline in late September has in fact encouraged
forward-buying, as a still rosy medium-term outlook made levels around
$1500 a good entry-point,” she said in a note.
Platinum was last down 2.3 percent
at $1,605.99, while palladium was down 1.9 percent at $652.25 and
silver fell 2.5 percent to $34.32 an ounce.
- Reuters
