LONDON: Gold
fell slightly on Thursday as worries of a contagion of the Euro zone
debt crisis from peripheral to core economies kept investors nervous and
made some liquidate profitable gold positions to cover losses in other
asset classes.
The cost of insuring French and Spanish 5-year government debt against default rose to record highs and the spread between French 10-year government bonds and their German equivalents jumped to a fresh euro-era high on fears the debt crisis was deepening and spreading to the larger euro zone economies.
A spat between France and Germany on Wednesday over whether the European Central Bank should intervene more forcefully to halt the euro zone's accelerating debt crisis raised doubts about the Euro leaders capability to find a solution.
"The bark in the Euro zone and the spat between Germany and France is pulling gold down," Credit Agricole analyst Robin Bhar said. "It is a bit surprising that gold continues to act like a risk asset rather than as a safe haven but in the short-term there is more need for dollars rather than need to hold profitable positions in gold."
Spot gold edged down 0.37 per cent to $1,755.75 an ounce by 1052 GMT, from $1,762.29 late in New York on Wednesday.
Given the funding stress in the banking sector negatively affecting a number of investment classes, many are liquidating their profitable gold positions to pay losses in other assets, analysts said.
This is likely to continue for the next few weeks as the financial year-end approaches for a number of market players and book squaring may prompt more liquidation.
The long-term outlook however, remains bright for gold, as physical demand has increased lately with investors and banks looking to stock up on secure assets.
BULLISH DATA
Demand for gold rose by 6 per cent to a 1-1/4 year high in the third quarter of 2011, driven by central bank purchases and European demand for bullion against the backdrop of the escalating euro crisis, according to a report by the World Gold Council (WGC).
The cost of insuring French and Spanish 5-year government debt against default rose to record highs and the spread between French 10-year government bonds and their German equivalents jumped to a fresh euro-era high on fears the debt crisis was deepening and spreading to the larger euro zone economies.
A spat between France and Germany on Wednesday over whether the European Central Bank should intervene more forcefully to halt the euro zone's accelerating debt crisis raised doubts about the Euro leaders capability to find a solution.
"The bark in the Euro zone and the spat between Germany and France is pulling gold down," Credit Agricole analyst Robin Bhar said. "It is a bit surprising that gold continues to act like a risk asset rather than as a safe haven but in the short-term there is more need for dollars rather than need to hold profitable positions in gold."
Spot gold edged down 0.37 per cent to $1,755.75 an ounce by 1052 GMT, from $1,762.29 late in New York on Wednesday.
Given the funding stress in the banking sector negatively affecting a number of investment classes, many are liquidating their profitable gold positions to pay losses in other assets, analysts said.
This is likely to continue for the next few weeks as the financial year-end approaches for a number of market players and book squaring may prompt more liquidation.
The long-term outlook however, remains bright for gold, as physical demand has increased lately with investors and banks looking to stock up on secure assets.
BULLISH DATA
Demand for gold rose by 6 per cent to a 1-1/4 year high in the third quarter of 2011, driven by central bank purchases and European demand for bullion against the backdrop of the escalating euro crisis, according to a report by the World Gold Council (WGC).