Gold prices edged down on Wednesday, tracking euro down on contagion fear

Gold prices fell more than half a percent on Wednesday, tracking a lower euro on fears the euro zone debt crisis could spread to France, the bloc’s second-largest economy, while Greece and Italy struggle to save their economies.

Gold is a popular buy in times of economic and political turmoil because of its safe haven allure, although bullion has moved in close correlation with riskier assets, as harried investors at times liquidate gold positions to cover losses elsewhere.

France came under heavy fire in global markets on Tuesday, reflecting fears the euro zone’s second biggest economy is being sucked into a spiraling debt crisis.

Meanwhile, Italian bond yields rose back above 7 percent, a level perceived to be unsustainable, and Spanish bond yields hit a 14-year high.

“That tells you that things are not OK,” said Dominic Schnider, head of commodity research at UBS Wealth Management in Singapore. “It will give gold some support, although the dollar is putting some pressure.”

Spot gold lost 0.6 percent to $1,770.99 an ounce by 0257 GMT (9:57 p.m. EST).

U.S. gold also fell 0.6 percent to $1,772.30.

Technical analysis suggested that gold could rise to $1,829 an ounce during the day, said Reuters market analyst Wang Tao.

Investors are watching the European Central Bank for potential bond buying action to help the heavily indebted euro zone states.

“This decision will come up in the first quarter when a huge amount of maturing debt will need to be financed,” said Schnider of UBS, adding that large-scale bond purchases would help boost gold prices.

Asia’s physical gold market lacked excitement, as bullion prices were trapped in a tight range over the past few days.

“The dollar strength has weakened local currencies, which has tempered buying interest,” said a physical dealer in Singapore.

Gold priced in Indian rupees rose to a record of 90,537.13 rupees per ounce earlier this week, while dollar-denominated gold languished about 8 percent below its record of $1,920.30 hit in early September.

Palladium will show its biggest market surplus in four years in 2011, as sales of Russian stocks and disinvestment outweigh record autocatalyst demand, while a rising supply of platinum will outpace Chinese jewellery demand and industrial consumption this year and next, according to refiner Johnson Matthey. – Reuters

Posted by VBN on Nov 16 2011. Filed under Gold. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry