Gold traded lower on Wednesday under pressure
from the weakness in the euro, which fell even though the European
Central Bank eased some of the pressure on the government bond market,
as alarm escalated over the spreading debt crisis.
The European Central Bank stepped
into the bond markets to stem an accelerating sell-off in euro zone
government bonds, traders said, after the United States called for more
decisive action to halt the spread of the crisis.
Gold fell broadly, dropping in
most of the major currencies, although the euro price of bullion was one
of the better performing crosses, trading almost unchanged on the day
near one-month highs above 1,300 euros an ounce.
So far this month, gold in euros
has outperformed Bund futures, European benchmark equities, the
trade-weighted euro and peripheral euro zone debt.
Gold priced in dollars was last
down 0.5 percent on the day at $1,772.00 an ounce by 13:25 SA time, set
for its first weekly decline in five weeks.
“The euro zone crisis isn't going
to carry on like this for another three months, it will come to some
resolution, but it's hard to know what it means for gold,” said
Mitsubishi analyst Matthew Turner.
“It could be bullish if the ECB starts money-printing, but it could be bearish if there is another flight to cash,” he said.
Gold, which has risen by nearly 15
percent since hitting a two-month trough in late September, has
benefited from investor demand for gold in the current market turmoil,
but has struggled against the headwind of a stronger dollar.
The amount of metal held by
exchange-traded funds has risen by 966,000 ounces in the last month,
while US futures data shows speculators have raised their holdings of
gold futures by nearly 1 percent, or 1.8 million ounces, in this time.
“The continued ETF support is
encouraging, and underscores the renewed confidence in the gold market,”
Walter de Wet, a precious metals analyst at Standard Bank, said in a
note.
“Our strategic view remains unchanged: gold will push higher in 2012 with a target of $2,000 in the first quarter of 2012.”
Hedge fund manager John Paulson,
the largest investor in the SPDR Gold Trust, the biggest gold ETF, cut
his stake in this ETF by a third in the third quarter of this year,
although analysts said he may have shifted his investment in bullion to
physical bars.
There
is an element of doubt in parts of the investment community that the
gold price will be able to break above this year's record $1,920.30 an
ounce, especially given the potential for worsening money-market
conditions to prompt a sell-off by cash-hungry institutions.
The largest overnight change in
open interest in COMEX gold derivative contracts that expire next week
emerged in bullish call options - which given the owner the right, but
not the obligation to buy an asset at a pre-determined price by a set
date.
Open interest fell by nearly 2,700
lots, representing 270,000 ounces of metal, on just seven contracts of
call options with strike prices ranging from $1,780 to $2,200.
Investors tend to favour gold
during times of financial or political uncertainty because of its safe
haven properties, although bullion has moved in close correlation with
riskier assets recently, as harried investors liquidate gold positions
to cover losses elsewhere.
France came under heavy fire in
global markets on Tuesday, reflecting fears that it is being sucked into
a spiralling debt crisis.
Italian bond yields rose back above 7 percent, a level seen as unsustainable, and Spanish bond yields hit a 14-year high.
“That
tells you that things are not OK,” said Dominic Schnider, head of
commodity research at UBS Wealth Management in Singapore. “It will give
gold some support, although the dollar is putting some pressure.”
The euro clawed back from
one-month lows against the dollar after the ECB was seen defending
Italian and Spanish debt from a renewed sell-off.
In other precious metals, silver
was last trading down 0.6 percent at $34.35 an ounce, while platinum was
down 0.7 percent on the day at $1,625.49 an ounce and palladium was
down 1.3 percent at $651.97. - Reuters
