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PRECIOUS-Gold capped as euro slides on Greek, Spanish worries

Tuesday, 9 Oct 2012 | 10:56 AM ET

* Gold hemmed in but prices stay close to 11 month high

* Losses limited as market seen picking up safe-haven cachet again

* Investment demand intact as ETPs hit new record high * S. Africa platinum mines still closed, platinum edges up (Updates prices) By Clare Hutchison

LONDON, Oct 9 (Reuters) - Gold prices trimmed their losses on Tuesday, but stayed under pressure as concerns over the euro zone's peripheral economies sent the euro to session lows versus the dollar.

The dollar/gold correlation - where a stronger dollar would tend to pressure bullion - did not have its usual downward effect as investors seeking gold as a safe haven from euro zone turmoil counteracted the impact of a fall in the euro.

The single European currency slipped after a meeting of euro zone finance ministers on Monday dashed investors' hopes of a bailout for Spain's troubled economy, with ministers insisting that Madrid was still able to fund itself via capital markets.

News that Greece's international lenders may give it longer to meet its deficit reduction targets also weighed on the euro

and the International Monetary Fund warned the global economic slowdown was worsening.

Spot gold was broadly flat at $1,774.74 per ounce by 1416 GMT, although the price was still close to its highest in 11 months.

"A drift higher in the dollar won't have much of a damning impact on gold because it would indicate that there is some renewed uncertainty and worries in the market and that tends to be supportive to gold," said Ole Hansen, head of commodity strategy at Saxo Bank.

Analysts said gold prices would also continue finding support from recent moves by central banks to loosen monetary policy, including the Federal Reserve's open-ended bond-buying plan announced last month, which provide long-term support for gold.

"Our sense is that the real driver for the dollar will be real interest rates and real interest rates in the U.S. are negative," said Deutsche Bank's Michael Lewis.

Gold usually benefits from an environment of low real interest rates, those that strip out the effect of inflation, as it lowers the premium that investors would otherwise forfeit if they held bullion rather than a yield- or dividend-bearing asset such as company shares or currencies.

The gold price has gained more than 13 percent so far this year, in large part because of the efforts of the world's major central banks to keep monetary policy loose.

POLICY LOOSE

The central bank in China, the world's second largest gold buyer, on Tuesday made its second largest gross cash injection into domestic money markets on record, with a boost of 265 billion yuan ($42.15 billion).

The International Monetary Fund cut its 2012 global growth forecast to 3.3 percent from 3.5 percent and warned U.S. and European policymakers that failure to solve their respective economic problems would only make the slump worse.

Reflecting continued investor demand for gold against a worsening economic backdrop was another inflow of metal into exchange-traded products (ETPs), which brought global holdings to a fresh record of 74.76 million ounces by Monday's close.

Silver rebounded from earlier losses and increased 0.1 percent to $33.99 an ounce, snapping a two-day losing streak.

Platinum edged higher, rising 0.4 percent on the day to $1,692.75 an ounce.

There was no sign that the unrest that has swept through South Africa's platinum belt was easing. Nearly 100,000 workers are on strike in the country and 75,000 of those work in the mining industry.

Several operations belonging to world number one producer Anglo American Platinum remain shuttered, along with facilities belonging to other smaller miners.

Palladium was up 0.8 percent at $659.00 per ounce .

(Additional reporting by Veronica Brown in London and Rujun Shen in Singapore; Editing by Robin Pomeroy)

((clare.hutchison@thomsonreuters.com +44)(0)(20 7 542 3346))

Keywords: MARKETS PRECIOUS/