(Updates with comment, prices)
* ETFs hold near record highs
By Amanda Cooper
LONDON, Dec 14 Gold tumbled to its lowest
level since early October on Wednesday, set for its weakest
monthly performance since September, as a weak euro and a
shortage of dollar funding over the year-end prompted investors
to sell aggressively.
Gold has lost about 8.0 percent in value so far this month,
on course for its weakest December performance since 2008 and
its third-largest monthly sell-off in three years, the point at
which the global credit crunch was at its worst.
The metal's safe-haven status has been called into question
given its inability to profit from the high degree of risk
aversion and uncertainty current among investors.
Banks' dollar borrowing from the European Central Bank
tripled on Wednesday compared to the prior week as the euro zone
debt crisis has caused money markets to seize up, aggravating
any sell-offs in gold, as investors scramble for dollars ahead
of the year end.
Spot gold was down nearly 3 percent on the
day at $1,585.49 an ounce by 1610 GMT, its lowest since late
The price is set for a 7.3 percent fall this week, its
largest weekly slide in nearly three months.
The lure of the dollar as a comparatively secure alternative
to the euro, which has pushed local prices for key gold
consumers such as India to record highs and deterred buying,
together with an investor dash for cash have overwhelmed gold's
"The cash story is very interesting. If you are a
commodities investor, there will be some great opportunities
over the next couple of months to accumulate again if you're
looking further ahead," Ole Hansen, senior manager at Saxo Bank
"The super-cycle is nowhere near dead, but right now, it is
a question of getting exposure down and coming back in two weeks
and seeing where we are," he said.
Volume in the most-active February gold futures contract
reached 130,000 lots by 1542 GMT, almost 70 percent of volume
for the whole of the previous day, which was the highest so far
The U.S. Federal Reserve on Tuesday warned that turmoil in
Europe presented a big risk to the U.S. economy, leaving the
door open to possible further steps to boost growth, even though
it noted a somewhat stronger labour market.
There has been a clear tendency among investors to hold
cash, rather than hard assets, and this has become more evident
as the end of the year approaches.
The most recent Reuters asset allocation poll showed global
portfolio managers held more cash in November than at any time
during at least the last seven years, another of the factors
undermining gold's safe-haven properties
HSBC said the lack of a commitment to inject more stimulus
into the economy by the Fed was a negative factor for gold,
along with a push among investors to get more cash onto their
balance sheet, but the bank maintained its positive longer-term
view for the bullion price.
"Additionally, some macro hedge funds are liquidating gold
holdings and taking profits in a difficult year. As trading
volume typically drops toward year-end, we expect increasingly
volatile price swings," wrote HSBC analyst James Steel in a
"Potential gold buyers may be reluctant to come forward as
the year draws to a close. Gold could easily slide through the
holidays," he said, noting the resilience of holdings of metal
in exchange-traded products, which remain near record highs.
Global holdings of gold in the major ETFs tracked by Reuters
remain above 70 million ounces, close to this month's record
70.148 million ounces, as inflows into European funds offset
outflows from large U.S. products such as the SPDR Gold Trust
, the world's biggest gold-backed ETF.
The amount of gold held in ETFs may be near record highs,
and although the gold price is suffering from investors' desire
for the safety of cash, the risk of this $116 billion stash of
bullion being jettisoned is distant, say analysts.
In other precious metals traded, platinum was last
down 3.4 percent on the day at $1,419.74 an ounce.
The platinum price is set for its largest monthly decline
since September, down by nearly 6 percent so far in December, in
spite of potentially price-supportive reports earlier this week
of a sharp decline in platinum mine output in top producer South
The premium of gold over platinum had reached historic highs
above $200 an ounce, indicating gold's outperformance. But with
the decline in the gold price this week, this gap has narrowed
to around $165 an ounce.
Palladium was last down 6.5 percent at $599.75 an
ounce, while silver fell 6.3 percent on the day to $28.82
(Editing by Keiron Henderson)