Gold falls 1.2pc as dollar strengthens

Wednesday, December 09, 2009
LONDON: Gold prices extended losses, dropping 1.2 percent in Europe on Tuesday to a session low of $1,142.30 an ounce, as the dollar strengthened against the euro after Fitch downgraded Greece’s credit rating.

Spot gold hit a low of $1,142.30 and was bid at $1,146.30 an ounce at 1353 GMT, against $1,156.90 late in New York on Monday.

In that session it fell to a two-week low of $1,135.80, having touched a record $1,226.10 on Dec 3.

Afshin Nabavi, head of trading at MKS Finance in Geneva, said the metal was being influenced by the dollar, and had moved sharply after breaking through key technical levels which triggered automatic selling.

“There were some stops below $1,150,” he said. “(Gold) seems to be trading in a range $1,135 -1,165.”

The dollar strengthened against the euro on Tuesday as the single currency was weighed down by concerns about Greece’s fiscal health after Fitch downgraded the country’s credit rating.

Strength in the US unit boosts gold’s appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.

An unexpected 1.8 percent month-on-month fall in Germany’s industrial output in October also weighed on the euro, while persistent concerns about Dubai’s debt woes pushed investors to seek the safety of the dollar.

Commerzbank analyst Eugen Weinberg said gold remains vulnerable to a recovery in the US currency.

“Should the dollar strengthen in the coming days, it would be very difficult for gold prices to hold at current levels, because it would take one of the most important arguments (for buying gold) away from the market,” he said.

US gold futures for February delivery on the COMEX division of the New York Mercantile Exchange fell $16.50 to $1,147.50 an ounce.

HSBC raised its gold price forecasts for 2009 to $990 an ounce from $925 previously, and said it sees prices at $1,150 an ounce next year, against $950 previously.

“Ongoing accomodative US monetary and fiscal policies may lend further support to gold,” the bank said in a note.

Elsewhere, an official Chinese newspaper said on Tuesday China should increase the proportion of gold in its foreign exchange reserves to ensure the safety of its overall portfolio.