Gold falls 2pc

Tuesday, December 08, 2009
LONDON: Gold prices fell 2 per cent to session lows in Europe on Monday, on selling prompted by the dollar’s rise to a five-week high versus the euro following above-consensus jobs data in the previous session.

Spot gold and was bid at $1,147.85 an ounce at 1031 GMT, against $1,159.55 late in New York on Friday. Earlier it hit a two-week low of $1,135.80 an ounce, but quickly bounced. Friday’s much better than expected non-farm payrolls data prompted speculation the US Federal Reserve may lift interest rates from their current historic lows sooner rather than later, which could help the dollar and cut support for gold.

However, the metal’s underlying appeal as a hedge against potential inflation and ongoing instability in the financial markets mean prices are likely to find support around these levels, analysts said. “The first line of support is around the $1,135 area. So far we have held that level,” said Tom Kendall, precious metals strategist at Mitsubishi Corp.

He said while the jobs data and the dollar’s subsequent bounce were pressuring gold, he did not expect to see a significant change to expectations for US monetary policy. “I don’t think a couple of data points are really enough to make people readjust their expectations of what the US Treasury and the Federal Reserve are going to be doing in the next six to nine months,” he said.

The market was generally expecting a move on rates from Q3 2010 onwards, and I think once this settles down that is still going to be the case.” US gold futures for February delivery on the COMEX division of the New York Mercantile Exchange fell $21.40 to $1,148.10 an ounce.

The US currency has been depressed for much of the year on the view that US rates will stay low while those elsewhere rise. Strength in the US unit cuts gold’s appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies. “Will this start a larger dollar recovery as investor confidence is restored in USA Inc.... or will investors merely view this as a temporary correction in an otherwise deeper bear trend?” said James Moore, an analyst at TheBullionDesk.com.

“We are unconvinced of the former at present and believe there are plenty of factors to support the latter, particularly the scale of debt accumulated through the US’s quantitative easing programme.” Other commodities also fell, with oil prices easing below $75 a barrel, tracking weaker equities.