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Gold drops as dollar gains bring market off 2-month high
NEW YORK/LONDON |
NEW YORK/LONDON (Reuters) - Gold futures ended lower on Thursday as a rising dollar prompted the precious metal to retreat from a two-month high reached earlier as the Bank of England stunned markets with a big increase in bond buying to stimulate the economy.
Global monetary easing, combined with the recent upturn in economic sentiment, have sent gold sharply higher after the metal was pressured by deflation fears earlier this year.
"I think the market is ripe for a minor correction," said George Nickas, commodities broker at FC Stone. "The stock market has the main attention right now, and commodities markets are chucking right along, but that can turn on a dime."
Gold has risen toward $1,000 an ounce several times in the past 18 months, and each time met heavy liquidation pressure.
U.S. December gold futures settled down $3.40 at $962.90 an ounce on the COMEX division of the New York Mercantile Exchange. Earlier in the session, the contract hit a session high of $974.30, the loftiest price since June 5.
Spot gold was at $958.30 an ounce at 2:33 p.m. EDT (1833 GMT), against $961.95 an ounce late in New York on Wednesday.
The Bank of England stunned investors by boosting its bond buying program, also called quantitative easing, to 175 billion pounds ($297 billion) from 125 billion, beyond a previous limit of 150 billion pounds.
"People are starting to get worried about banks having things too loose for too long," Citigroup analyst David Thurtell said.
But gold fell from its intra-day peak after the European Central Bank said it expected price stability to be maintained.
Bullion, however, could still weaken because of a resurgent dollar and if crude oil prices come off following a sharp rally.
Commerzbank analyst Eugen Weinberg said both inflation worries and technical factors were at play, and a stronger dollar would undercut bullion's rally.
"Should the dollar rally toward $1.42, $1.43 (versus the euro) I could imagine gold would suffer," he said.
In supply news, Gold Fields GFIJ.L, the world's No. 4 gold producer, said its output of the metal rose 4 percent in the fourth quarter while production costs fell 6 percent to $512 an ounce.
Among other precious metals, silver was at $14.47, against its previous finish of $14.64.
The world's largest silver producer, Fresnillo (FRES.L), said its board had approved a pre-feasibility study for the development of its Saucito project in Mexico, which could produce up to 9 million ounces of silver a year.
This is equivalent to more than 1.3 percent of annual global production, which stood at 680.9 million ounces last year.
Platinum dropped to $1,259 an ounce against $1,282.50, while palladium was at $270.5 against $273.
Traders have taken profits in both metals after they hit multi-month highs on Wednesday amid talk of a strike at South African power company Eskom.
The union said on Thursday it will march to press state utility Eskom for better wages, as the company braced for a possible strike that could disrupt power in the world's biggest platinum producer.
Close Change Pct 2008 YTD
Chg Close Pct Chg US gold 962.90 -3.40 -0.4 884.30 8.9 US silver 14.645 -0.115 -0.8 11.295 29.7 US platinum 1263.40 -29.70 -2.3 941.50 34.2 US palladium 271.10 -8.10 -2.9 188.70 43.7
Prices at 2:33 p.m. EDT (1833 GMT) Gold 957.80 -4.15 -0.4 878.200 9.1 Silver 14.47 -0.17 -1.2 11.30 28.1 Platinum 1259.00 -23.50 -1.8 924.50 36.2 Palladium 270.50 -2.50 -0.9 184.50 46.6
Gold Fix 964.00 3.25 0.3 836.50 15.2 Silver Fix 14.670 0.000 0.0 14.760 -0.6 Platinum Fix 1281.00 0.00 0.0 1529.00 -16.2 Palladium Fix 273.00 0.00 0.0 365.00 -25.2
(Additional reporting by Catherine Bosley in London)
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