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Gold Down on Technical Selling, Europe Jitters

Published: Wednesday, 8 Feb 2012 | 4:11 PM ET

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By: Reuters

Gold fell almost 1 percent on Wednesday on new worries about Europe's economy and as technical resistance prompted investors to take profits after the previous session's rally.

Gold
Boris Engelberg | Stock4B | Getty Images
Bullion weakened on news that Italy's economy probably contracted in the fourth quarter and on discouraging reports from Germany and France, along with lingering doubt about a rescue package for Greece.

Gold remained up about 11 percent for the year, boosted by the U.S. Federal Reserve's commitment to near-zero interest rates and also buoyed by gains in equity markets.

"We're back into the technically congested area. It's easier to take profits if you've got some than to hold onto it with this much uncertainty going on," said Sean McGillivray, head of asset allocation for Great Pacific Wealth Management.

McGillivray said that the previous session, gold rose 2 percent and appeared likely to continue the uptrend due to a bullish double-bottom chart pattern. But on Wednesday, gold failed to break above the previous session's high around $1,750 an ounce, and aggressive selling set in.

Spot gold [XAU= Loading... () ] was down 0.7 percent at $1,732.49 an ounce.

U.S. gold futures [GCCV1 Loading... () ] settled down $17.10 an ounce at $1,731.30. Volume was about 25 percent below its 30-day average but in line with its recent trading pace.

Analysts said economic uncertainty in the euro zone and the United States should underpin gold.

Even after a stronger-than-expected U.S. job report last week, Fed Chairman Ben Bernanke said in Congressional testimony on Tuesday that U.S. economic recovery could remain challenging.

"The idea that the Fed's view on the economy was not as encouraging as the employment figures reflected was enough of a reminder to money managers that interest will remain low for a long period of time," said Carlos Perez-Santalla, precious metals broker at PVM Futures.

Germany saw its steepest drop in exports for nearly three years in December and the Bank of France said that country's economy would not grow in the first quarter.

In trading news, Nasdaq OMX Group [NDAQ Loading... () ] said it is launching new spot gold futures that will be cash-settled with an aim to simulate over-the-counter trading of spot bullion.

Silver Outperforming Gold

The gold-silver ratio, which measures how many ounces of silver is needed to buy an ounce of gold, hovered above 51, its lowest level in three months. For most part of 2011, the ratio was below 46, compared to a near 30-year average of 64.

Spot silver [XAG= Loading... () ] fell 0.7 percent to $33.89 an ounce.