Gold turns lower as dollar rise, deleveraging weigh

NEW YORK/LONDON (Reuters) - Gold ended lower after a mixed session on Monday, as a stronger dollar and sharp decline of the stock markets prompted investors to lessen leveraged positions across all asset classes.

A salesman arranges gold bracelets inside a jewellery showroom in Jaipur, capital of India's desert state of Rajasthan January 12, 2009. REUTERS/Vijay Mathur

Spot gold was at $915.95 an ounce at 4:13 p.m. EDT, down 0.7 percent from its last quote $922.10 in New York late Friday. The precious metal fell 3 percent last week, but has held above $900 on buying by gold-backed exchange traded funds.

U.S. gold futures for June delivery settled down $7.60 at $917.70 an ounce on the COMEX division of the New York Mercantile Exchange.

Investors use gold as a hedge against financial uncertainty and inflation, while a higher U.S. currency makes gold priced in dollars more expensive for holders of other currencies.

“Tendencies on equity markets and the dollar will be the dominant factors for oil and gold this week,” said Barbara Lambrecht, analyst at Commerzbank.

The dollar extended gains against the euro as worries about the financial and U.S. auto sectors unnerved investors, prompting them to take refuge in the relative safety of the U.S. currency.

Euro sentiment suffered a blow last week after Germany’s Finance Minister Peer Steinbrueck said budget irresponsibility in Europe would damage credibility.

“It’s the strong dollar. We’ve gone back to that inverse relationship that had disappeared between the dollar and gold,” Stephen Briggs, a commodities strategist at RBS Global Banking & Markets, said.

Gold initially firmed on Monday as investors spooked by fresh turmoil in equity markets turned to the precious metal.

Wall Street tumbled as the Obama administration raised the specter of bankruptcy for Chrysler and General Motors GM.N and Spain had to rescue a regional savings bank. Dow average ended down more than 250 points.

Markets are looking ahead to the April 2 summit of the world’s 20 biggest economies to discuss regulation and spending to help end the worst recession since the 1930s.


A boost for gold was news that investors are still buying the metal. The world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, said holdings rose 2.45 tonnes to a record 1,127.44 tonnes on March 29.

“With this strong investment demand..., at some point gold will come up,” Briggs added.

Gold rose to an 11-month high above $1,000 an ounce on February 20 as worries about the banking crisis escalated and slipped to $882.90 on March 20 on profit-taking as the dollar rose and equity markets calmed.

Even before Monday’s U.S. rejection of rescue plans for GM and Chrysler, concern about a major auto industry failure has been haunting markets, particularly in autocatalyst material platinum.

Although platinum rose to $1,159 last week, the highest since last September, its prices have halved since a record high of $2,290 an ounce hit in March 2008.

“We expect the more industrial-based metals to remain under pressure in the near term, with the worsening economic conditions and the slowdown in vehicle sales,” Barclays Capital said in a note.

Platinum was last at $1,111.00 an ounce, down 1.1 percent from its previous close of $1,123 on Friday, having hit a session low of $1,110.

Silver was at $13.02 an ounce, down 1.9 percent from its previous finish of $13.27, after hitting a session low of $12.90. Palladium traded at $213.50 an ounce, down 1.8 percent from its previous finish of $217.50.

With additional reporting by Rebekah Curtis; Editing by Marguerita Choy