Precious metals find floor after sell-off

LONDON (Reuters) - Gold found support below $790 an ounce after falling nearly 5 percent in early European trade on Friday, as the precious metals’ downward slide ran out of steam.

A worker shows gold biscuits at a precious metals refinery in Mumbai March 3, 2008. REUTERS/Arko Datta

Spot gold hit an intraday low of $773.90, its weakest since November 20, before recovering to trade at $789.60/790.60 at 1340 GMT, down from $811.25/812.65 late in New York on Thursday.

COMEX December gold was down $18.80 at $795.70 an ounce, or 2.3 percent.

“We saw far stronger than expected support at the November lows, (and) the euro has stabilised and found some support,” said Dresdner Kleinwort consultant Peter Fertig.

He said however that in the medium term, given expectations for a firmer dollar and lower oil prices, “the outlook for precious metals remains cloudy.”

A strengthening dollar and fears over slower growth prompted investors to sell off commodities earlier in the day.

Losses across precious metals were led by silver, which slipped 12 percent or $1.76 an ounce in Asian trade, amid talk of large-scale selling by a Far Eastern bank.

A firmer dollar typically pressures bullion, which is often bought as an alternative investment to the U.S. currency. Strength in the greenback also makes dollar-priced commodities more expensive for holders of other currencies.

The dollar hit a six-month high against the euro on Friday after data showed a contraction in euro zone growth, and extended gains after a report showed unexpected growth in U.S. manufacturing in New York state.

The dollar has rallied 5 percent against the single currency this month.

“People are dollar-bullish at the moment,” said Simon Weeks, director of precious metals at the Bank of Nova Scotia.

“Inflation will restrict the Fed’s ability to cut rates, plus we have weaker growth in Europe, so the euro has been suffering,” he added. “The dollar is coming out top at the moment, so people have been liquidating commodities.”


Gold is now holding above key support in the $770s, with any break lower potentially taking the precious metal down to $750.

“Generally... the outlook for the precious metals is mixed to mildly negative,” said JP Morgan analyst Michael Jansen.

“Reduced concern about the inflation outlook, a more robust outlook for the U.S. dollar, a slowdown in producer de-hedging and a very long market in terms of physical ownership (are) biasing prices lower,” he said.

Oil prices have also slipped, reaching a session low of under $113 a barrel, as fears over weakening global demand dampened interest in crude.

Falling crude prices reduce gold’s appeal as a hedge against oil-led inflation, and can undermine confidence in commodities as an asset class, analysts said.

Negative sentiment in the commodity markets in recent months can be seen in the performance of indices such as the Reuters-Jeffries/CRB index, which has fallen almost 18 percent since early July.

Silver suffered the most in the sell-off of precious metals, with prices plummeting to a low of $12.39 an ounce, their weakest since last September, in Asian trade.

Platinum and palladium slipped in silver’s wake, shedding 7 percent and 6 percent respectively. Both have suffered significant losses in recent weeks on fears faltering global growth could affect car demand.

“The more industrial precious metals, like silver and platinum, are also being hampered by concerns about global growth -- demand for platinum in autocatalysts, and for silver in its industrial offtakes,” said Calyon analyst Robin Bhar.

“That is adding to the doom and gloom.”

Silver fell to $13.11/13.16 an ounce from $14.15/14.21 late in New York on Thursday.

Spot platinum dropped to $1,386.00/1,406.00 an ounce from $1,481/1,501 an ounce. Spot palladium fell to $291.00/299.00 an ounce from $306.50/314.50 an ounce.

Reporting by Jan Harvey; editing by Peter Blackburn