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Gold Settles Below $1725 On Greek Debt Jitters

Published: Monday, 6 Feb 2012 | 4:26 PM ET

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By: Reuters

Gold prices fell on Monday, after the dollar rose on a continued lack of progress in the Greek bailout and a better U.S. economic outlook added to the bullion profit taking seen during the previous session's sharp drop.

Gold
Jose Luis Pelaez | Iconica | Getty Images

Gold tracked losses in U.S. equities as the failure of Greek coalition parties to approve the terms of a new bailout package rekindled worries about a chaotic default that could spread to euro zone countries, which lifted the dollar index [.DXY Loading... () ].
Spot gold [XAU= Loading... () ] ended down 0.3 percent at $1,719.69 an ounce up off a low of $1,711.29 hit earlier in the session.
U.S. gold futures for April [GCCV1 Loading... () ]tumbled $15.40 down to $1724.90 an ounce.

Gold dropped 2 percent on Friday after encouraging U.S. payrolls data smashed hopes of extra stimulus from the Federal Reserve, which had been priced into bullion's 11 percent rally in January.

"The dollar's up because of worries over Greece and optimism surrounding the U.S. economy after the jobs report. In the long run, there are still a lot of downside risks to the dollar," said Jason Schenker, president of Prestige Economics LLC.

The Greek government and party leaders must agree on the terms of a second bailout with International Monetary Fund and European Union inspectors before euro zone finance ministers next meet, a government official said on Monday.

Although the sovereign debt crisis was a major driver of record-high gold last year as investors bought the metal as a haven from risk, prices this year are likely to keep moving in line with so-called riskier assets including other commodities, Kavalis said.

“Safe-haven buyers still exist, they're just far less of a force than they were at the peak of the sovereign debt crisis,” he said. “For the time being, we see gold over the next few months appreciating with other commodities.”

Kavalis added: “Its inflation-hedging properties, its anti-ultra loose monetary policy (qualities) are in our view what will drive gold. Risk in the market is one of the supporting factors, but the monetary policy outlook is really the key factor.”

The precious metal posted its worst daily performance of the year on Friday after better-than-expected jobs data dampened expectations of another round of U.S. quantitative easing .

The precious metal is still up nearly 10 percent this year, but if more signs emerge that the economy in the United States is recovering faster than the euro zone, pointing to a stronger dollar, gold may struggle to revisit its highs, analysts say.

"As long as the United States maintains its modest growth and the EU continues to disappoint, you would expect the dollar would continue to strengthen, and that wouldn't be positive for gold," said Carl Firman, an analyst at VM Group.

Stocks, Commodities Ease

On other markets, European shares fell back from a six-month peak on Monday due to fears about Greece.

Greece's travails also pressured the broader commodities markets, pushing crude oil prices lower and weighing on industrial metals such as copper and aluminium.

Demand for physical gold from key Asian markets was strong, however, as buyers took advantage of Friday's price drop to re-enter the market.

“There is some buying after Friday's fall in prices,” said Harshad Ajmera, proprietor of JJ Gold House in Kolkata. “People are comfortable at these rates.”

Gold coin retailers and physically backed investment products such as exchange-traded funds also had a strong start to the year.

The U.S. Mint reported its best monthly sales of American Eagle gold coins in a year in January.

“Gold held across the physically backed ETPs rose by 20 (metric tons) last week, (and) preliminary inflows for January are 24.5 tons, mostly reversing the net redemptions in December,” said Barclays Capital in a note. “Total metal held across the products has reached 2,404.6 tonnes and is now just 1.3 tonnes shy of the peak reached in early December.”

Silver prices [XAG= Loading... () ] edged up 0.4 percent for the day at $33.72 an ounce.
Spot platinum [XPT= Loading... () ] inched up 0.3 percent at $1,622 an ounce, while spot palladium [XPD= Loading... () ] was down 0.6 percent at $701.05 an ounce.

“Last Friday’s upside surprise in U.S. employment data was positive for palladium as it was for risk in general,” said UBS in a note. “The fact that palladium has greater exposure to the U.S. auto market and therefore benefits from improving economic prospects was well reflected in the metal's outperformance.”

The note went on: “The slow improvement in investor sentiment for palladium and the expansion in positioning, though influenced by risk appetite, is an expression of market participants' expectations for positive fundamentals up ahead.”