Gold falls 3 percent as dollar surges versus euro

LONDON (Reuters) - Gold prices fell 3 percent in Europe on Thursday, pressured by the dollar’s rise to 3-1/2 month highs against the euro as new concerns emerged over Greece’s fiscal health.

Gold bars are displayed to be photographed at bullion house in Mumbai in this December 3, 2009 file photo. REUTERS/Arko Datta

A statement by the Federal Reserve, in which it voiced growing optimism on the U.S. economy after it left interest rates unchanged on Wednesday, also supported the dollar.

Spot gold was bid at $1,104.10 an ounce at 1654 GMT (11:54 a.m. EST), against $1,137.80 late in New York on Wednesday. Earlier it touched a low of $1,102.90.

“We had the downgrading of Greece, and that is putting a bit of tension back into the euro,” said Ole Hansen, senior manager at Saxo Bank.

“It seems like we are seeing a change in the perspective for the dollar heading into the New Year, and that is going to be a very interesting one to follow.”

U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange fell $30.40 to $1,105.90 an ounce.

The dollar hit three-month highs against a currency basket and rose against the euro as concerns over fiscal troubles in peripheral euro zone countries gathered pace, with Greece seeing the second downgrade of its credit rating in a week.

The U.S. currency had already risen sharply against a basket of currencies after the Fed highlighted improvement in the U.S. economy on Wednesday.

“As the markets get further confirmation that the U.S. economy is gathering strength, the dollar’s strength may force gold to slide lower,” Pradeep Unni, a senior analyst at Richcomm Global Services, said.

The Fed voiced growing optimism on Wednesday over the U.S. economy as job losses slow, but said it would keep interest rates low for “an extended period.”

In a post-meeting statement, the Fed highlighted improvement in the battered housing sector and noted last month’s fall in the unemployment rate.


“The overall tone was more than sufficient for the greenback to extend its upward trajectory, especially amid the rapid concentration of euro zone-centric credit and banking problems,” said CMC Markets chief market strategist Ashraf Laidi in a note.

Strength in the U.S. unit reduces gold’s appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.

Many other commodity prices also fell, with oil down nearly 1 percent as the dollar’s rise curbed buying. Gold tends to track crude prices, as the metal can be bought as a hedge against oil-led inflation.

New York investors showed renewed interest in exchange-traded funds, with holdings of the world’s largest gold-backed ETF, the SPDR Gold Trust, rising nearly 4 tonnes on Wednesday, the trust said.

Earlier this month the fund saw its biggest outflow since July as gold prices slipped.

In India, the world’s biggest bullion consumer last year, gold prices fell in the physical market as buyers stayed away, expecting another fall in prices, dealers said.

Among other precious metals, silver was at $17.15 an ounce against $17.67 and platinum at $1,418.50 versus $1,451.50. Palladium was bid at $365 against $371.50.

Investment interest in the metal was strong, with holdings of ETFS Physical Palladium, an exchange-traded product operated by London’s ETF Securities, rising more than 10,000 ounces on Wednesday to a record 658,743 ounces.

Editing by Anthony Barker