December 19, 2011 / 12:45 AM / 6 years ago

Gold edges back below $1,600/oz as euro flounders

Gold and silver bars are pictured at the Austrian Gold and Silver Separating Plant 'Oegussa' in Vienna August 26, 2011.Lisi Niesner

NEW YORK/LONDON (Reuters) - Gold prices eased on Monday as concerns that the European debt crisis will hurt global growth kept the euro under pressure, but prices are expected to remain rangebound, with liquidity tightening as money managers close their books for the year.

Spot gold edged down to $1,593 an ounce by 3:05 p.m. EST from $1,598.75 at Friday's finish. Earlier, it set a low at $1,582.84, as worries about further euro zone debt rating downgrades lifted the dollar.

In New York, U.S. gold futures for February delivery closed down $1.20 an ounce at $1,596.70, and traded in a range between $1,593 to $1,607,50 per ounce.

"Most investors probably don't want to sell down here, but (see) no compelling reason to go long here either," said Mike Guido associate director of hedge fund sales at Macquarie in New York.

He said he looks for prices to "grind around the $1,590 to $1,600 level for next two weeks, or go into the new year and people will start cashing out again."

The precious metal has seen decent physical buying since falling to a near 12-week low last week, European dealers said. It went on to post its biggest one-week loss since late September as the dollar benefited from concerns over the euro zone debt crisis.

While investors remain cautious, a recovery from those lows, particularly to back above the precious metal's 200-day moving average around $1,620 an ounce, could trigger more buying.

"I think gold investors could be lurking in the wings if we get a good move back above (there)," Saxo Bank senior manager Ole Hansen said.

Spot gold may take awhile to carve out levels to the downside, but once the closing price is able to regain levels above the 200-day moving average, analysts said the yellow metal will resume its longer-term uptrend. (For graphic, see: link.reuters.com/tek65s )

The dollar pushed the euro near an 11-month low, on concerns the euro zone debt crisis will weigh on global economic growth and as uncertainty after the death of North Korean leader Kim Jong-il supported a safety bid for the dollar.

A warning by Fitch Ratings on Friday that it could downgrade France and six other euro zone countries and a ratings cut by Moody's on Belgium, on Friday, added to pressure on the euro.

Gold in recent months has been closely correlated to riskier assets as a funding squeeze forced investors to dump gold to cover losses elsewhere.

Confidence in the precious metal remains fragile after a weak fourth quarter so far, with spot prices on track to post their first quarterly loss in more than three years.

Gold investors who pared their positions several months ago should hang tight after last week's rout, despite signs that the precious metal has lost its luster as a safe-haven asset, say U.S. wealth managers.

Traders with an eye on the year end are likely to be loath to add to long positions at this stage, whatever their views of gold prices longer term, Mitsui & Co Precious Metals analyst David Jollie said.

"Whatever your view, you have to ask what the chances are of making money by the end of the year," he said. "That says to a lot of people that this is not a market to get longer in."

INVESTORS CUT BULLISH BETS

Money managers in gold futures and options cut bets on higher prices for a second consecutive week as gold prices fell sharply, the latest data from the U.S. Commodity Futures Trading Commission showed.

"The need/desire to hold U.S. dollars trumped gold's safe-haven attributes as liquidity became the overriding priority for investors," said Credit Suisse in a note.

Demand for physical metal in the world's biggest gold consumer, India, was subdued on Monday as buyers postponed purchases in anticipation of bigger fall in prices, dealers said.

Lower prices were tempting some European buyers, however.

"We have seen since last Wednesday very good demand for physical," said Afshin Nabavi, head of trading at MKS Finance. "It was still continuing this morning."

Analysts said gold may be vulnerable toward the end of the year and in early 2012, with no end to the euro zone debt crisis in sight, and the dollar expected to get a boost from improvement in the U.S. economy.

However, gold's underlying appeal as a hedge against currency market instability, an official sector reserve asset and as a store of wealth in emerging economies is expected to prevent too steep a correction, they added.

Even after last week's correction, spot gold prices remained up 12.9 percent from the beginning of the year.

Among other precious metals, silver was down 2.91 percent at $28.77 an ounce, having fallen about 8 percent last week in gold's wake.

Spot platinum was down about 0.60 percent at $1,402.98 an ounce, while spot palladium was off 2.07 percent at $607.72 an ounce.

Additional reporting by Rujun Shen; editing by James Jukwey, Bob Burgdorfer and David Gregorio

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