LONDON (Reuters) - Gold hit a two-week low on Monday as a broadly weaker euro encouraged investors to lock in profits from last week’s run to record highs.
Dealers and analysts also cited some selling to cover margin calls from hefty losses made on stock markets, but overall financial market uncertainty on fear of a U.S. recession was seen as an underlying support for gold’s safe-haven role.
Spot gold stood at $864.30/865.00 per troy ounce by 11:51 a.m. EST, its lowest since January 8 -- compared with $881.90/882.60 quoted late in New York on Friday.
“It was an unpleasant day for the euro against the dollar and yen and that filtered through into gold. We’ve swung from being wildly bearish on the dollar and now the focus has shifted to the euro,” Mitsubishi analyst Tom Kendall said.
Market volatility was high, due in part to thinner conditions with the Martin Luther King Day holiday.
The market is now more than 4.5 percent away from the record highs hit at $914 per ounce last week, but dealers and analysts said prices could benefit eventually as worries over the possibility of a U.S. recession intensify.
Global markets were dominated by battered stocks and demand for safe-haven bonds as investors worried that a troubled U.S. economy would drag down others with it.
“Commodities opened the year spectacularly, it’s only natural really that we see some profit-taking as the gold market was very long. The currencies have been the main factor this morning,” analyst James Moore of TheBullionDesk.com said.
Analysts have said a slide into recession in the United States could be beneficial for gold in the first instance as aggressive cutting of interest rates would weaken the dollar -- making dollar-priced gold more attractive as a safer investment.
On Monday, currency fundamentals remained unfavorable, with the euro down 1.1 percent on the day versus the dollar and 1.9 percent against the yen.
ETF HOLDINGS FALL
Dealers said that gold’s fall from the record highs was partly driven by investors and funds seeking to cover margin calls from losses in stock markets due to the recession fears.
Stock market turmoil highlighted investor worries on U.S. economic health and disappointment about a fiscal rescue plan promoted by the U.S. administration.
Money being taken off the table in gold was reflected in holdings of bullion on StreetTRACKS Gold Shares GLD.PXAUEXT-NYS-TT, the world's largest gold-backed ETF, which fell to 622.76 tonnes on January 18 from 629.83 previously.
“Despite the (ETF) outflows, prices have found support. Speculative interest in silver has also risen primarily on the back of fresh long positions taking net positions to their highest level since February,” Barclays Capital said in a note to clients.
On other bullion markets, the benchmark December contract on the Tokyo Commodity Exchange closed at 3,007 yen a gram, down 44 yen or 1.4 percent from Friday’s close.
COMEX gold futures dropped, with the most active February contract GCG8 down $17.70 or 2 percent at $864.00 from its New York settlement on Friday.
Silver fell to $15.61/15.66 per ounce from $16.14/16.19 late in New York on Friday. Platinum fell to $1,537/1,542 an ounce from $1,556/1,561 on Friday, while palladium fell to a three-week low of $360.50/365.50 an ounce from Friday’s U.S. levels of $367/372.
Additional reporting by Chikafumi Hodo in Tokyo, Editing by Michael Roddy
Our Standards: The Thomson Reuters Trust Principles.