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Gold Settles At $1741 After Greek Deal Announcement

Published: Thursday, 9 Feb 2012 | 4:58 PM ET

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By: Reuters

Gold prices eased against the dollar in choppy trading after Greece clinched a deal with European Union and IMF leaders needed to avoid a messy default.

Jack Vearey | Getty Images

Greece's agreement to adopt new austerity measures, confirmed by European Central Bank President Mario Draghi at a press conference, should pave the way for a 130 billion euro ($172 billion) aid package for the troubled country.

Spot gold [XAU= Loading... () ] was down 0.3 percent at $1,728.84 an ounce, having earlier risen as high as $1,751.69.

U.S. gold futures [GCCV1 Loading... () ] for April delivery settled up $9.90 an ounce at $1,741.20 before losses gained pace.

The euro [EUR= Loading... () ] rallied on the news, while European shares extended gains and the yield gap between Belgian and German 10-year bonds reached its tightest since July on Thursday as the euro zone's lower-rated credits rallied.

"The euro-dollar is now gaining because of positive news for the euro. Gold priced in dollars is piggy-backing on this," said Bayram Dincer, analyst at LGT Capital Management.

"This is a first-round effect, but the higher-order response from a risk perspective is that now, with the containment of an uncontrolled default, we are now on track with the Greek debt agreement. That should not result in a gold price rally."

Greece's partners in the European Union and the IMF had become increasingly exasperated by a lack of agreement on the measures they demand in return for the bailout.

The European Central Bank held interest rates at a record low on Thursday, seeing tentative signs of economic stabilisation. Draghi said however they were only fledgling signs, suggesting rates could yet fall below 1.0 percent.

Gold prices are up more than 10 percent this year, buoyed by the view that U.S. monetary policy will remain extremely loose.

Gold supported by a stronger-than-expected inflation reading out of China, which investors said may mean the central bank will hold off on aggressive monetary easing for now. But many economists expect inflation to ease February onwards, leaving China's policy of targeted monetary and fiscal easing intact.

Gold is seen as a good hedge against inflation, and is regarded as a good investment when accommodative monetary policies raise the outlook for price increases.

Technical analysis suggested that spot could fall to $1,698 an ounce during the day, said Reuters market analyst Wang Tao.

The gold-silver ratio dipped to around 51, its lowest level in more than three months.

Spot silver [XAG= Loading... () ] fell 0.4 percent at $33.84 an ounce. Silver has been one of this year's best-performing commodities, up more than 20 percent this year.

Asia's physical gold market remained subdued, as market participants await a clear direction out of the Greek debt saga.