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Gold Settles Above $1,671 After ECB Holds Firm on Rates

Anthony Bradshaw | Getty Images

Gold fell in a volatile session on Thursday after comments by European Central Bank (ECB) President Mario Draghi ignited renewed economic fears over the euro zone.

The metal fell in tandem with U.S. equities and industrial commodities on recession worries after Draghi's comments triggered a nearly one percent drop in the euro against the dollar. Draghi said that economic activity in the euro area should gradually recover later in 2013 but there are more negative risks than positive ones.

Technical selling accelerated gold's losses after the metal failed to rise above its 55-day moving average, which gold has failed to close above since late October. "It was up earlier but couldn't get through a resistance level," said COMEX gold options floor trader Jonathan Jossen. "There is no interest in gold."

The euro hit its lowest in a week versus the dollar after ECB President Mario Draghi said risks to the bank's outlook for the euro zone were to the downside. The euro had earlier maintained gains after the ECB held its main interest rate at a record low 0.75 percent

Gold fell 0.3 percent to trade near $1,671 an ounce, having earlier hit a session low of $1,662.80 an ounce.

U.S. gold for April delivery settled down $7.50, ending a whipsaw session at $1671.30.

Also denting sentiment was news that top Federal Reserve official Jeremy Stein, a member of the powerful Fed board of governors, said that an extended period of low interest rates could create risks to financial stability.

Physical gold demand also began to weaken ahead of the long Lunar New Year break, with premiums for gold bars in Hong Kong falling from last week's high.

In fundamental news, China's gold production rose for a sixth consecutive year to hit a record 403 tonnes in 2012, keeping its ranking as the world's largest bullion producer, the Shanghai Securities News said on Thursday. Silver fell 1.1 percent to $31.46 an once.

"Gold showed resilience even as the dollar strengthened after the ECB comments. There's some minor risk aversion washing through the market," Socgen analyst Robin Bhar said.

Physical gold activity also began to slow down ahead of the long Lunar New Year break, with premiums for gold bars in Hong Kong easing to $1 to $1.50 an ounce to the spot London price from as high as $1.70 last week.

China's gold production rose for a sixth consecutive year to hit a record 403 tonnes in 2012, keeping its ranking as the world's largest bullion producer, the Shanghai Securities News said on Thursday

Symbol
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Price
 
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%Change
Volume
GOLD
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SILV/USD
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SILVER
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PALL/USD
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PLAT/USD
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White Metals Pause

Platinum and palladium were steady after hitting 17-month highs in the previous session on positive economic data.

Platinum down marginally near Wednesday's at close's levels above $1,735 an ounce, having risen to $1,740 on Wednesday, its strongest since September 2011. Palladium inched down 0.4 percent to trade under $762 an ounce. The metal rose as high as $769.50 in the previous session, also its peak since September 2011.

A weak yen also lifted platinum futures on TOCOM, with the most active December contract jumping to its highest since early 2010 at 5,299 yen a gram.

Both metals, which are used in jewellery and auto catalysts, have gained on a more positive economic outlook and after mining disruptions in South Africa, as well as a drop in supply from Russia, triggered fears of a deficit. But analysts say a short-term correction is likely, considering strong speculative interest.

"The momentum suggests that there is some more upside to be had - but extra vigilance is required," broker UBS said in a note.

"Any risk-off development or negative economic data print would easily trigger an overdue washout, considering the amount of net speculative longs."