Gold drops as weak euro dents sentiment

NEW YORK/LONDON (Reuters) - Gold turned lower on Wednesday, snapping a two-day winning streak as a weak euro against the dollar amid fiscal worries in euro-zone countries weighed down on sentiment.

A man displays gold bars at SJC gold factory in Ho Chi Minh city January 22, 2010. REUTERS/Kham

A resurgent dollar has limited gold prices to a broad trading range in the past two months, and the weak trend for gold could persist if worries about euro and other currencies lingered, analysts said.

Bruce Dunn, vice president of trading at New Jersey-based Auramet, said gold was pressured by fiscal worries in Greece and Spain, and China’s recent raising bank reserve requirements.

“Gold has really struggled in recent months between $1,125 and $1,150 an ounce. You certainly need much stronger euro -- the $1.41 or $1.42 levels would be more compelling to see the gold rally,” Dunn said.

Spot gold had hit a peak of $1,124.45, the highest since January 20, but was last at $1,109.50 an ounce at 3:16 p.m. EST, lower than $1,113.95 late on Tuesday.

U.S. gold futures for April delivery settled down $6 at $1,112 an ounce on the COMEX division of NYMEX.

Analysts said that the positive link between bullion and other commodities has strengthened as a resurgent dollar triggered broad-based losses.

“The correlation between gold and other key commodities is very high at the moment, they are all trading together,” said Jesper Dannesboe, commodity strategist at Societe Generale.

Gold prices have reacted negatively in recent weeks to any talk suggesting that U.S. monetary policy could be tightened. Higher U.S. interest rates could dent the appeal of gold as a non-interest bearing asset.

Earlier on Wednesday, gold prices fell as the dollar firmed after news of U.S. private job creation.

“Maybe people think the number suggests that payrolls will be pretty good,” said David Thurtell, analyst at Citigroup. “That raises the prospect of a view that the Fed will think things are picking up and eventually tighten policy.


Traders are waiting for key U.S. non-farm payrolls data and interest rate decisions from the European Central Bank and the Bank of England due later this week.

On the supply side, Toronto-based Iamgold IMG.TO said it will produce about 1 million ounces in 2010 from 939,000 ounces last year, and Russia's Highland Gold Mining HGM.L said it plans produce 25 percent more this year.

Among other precious metals, platinum was at $1,572 an ounce versus $1,576.50, while palladium was at $435.50 against $439.50.

Platinum group prices held firm on the back of better U.S. auto sales data on Tuesday. Carmakers are the biggest consumers of platinum and palladium, which are used as autocatalyst to clean exhaust emission from vehicles.

In the investment sector, ETF Securities said total assets of its four U.S. precious metals exchange traded products, namely physical gold, silver, platinum and palladium, now exceeded $1 billion. The company launched its silver ETF, its first U.S. product, in July.

Silver was last at $16.34 an ounce against $16.68 late on Tuesday.

Additional reporting by Pratima Desai and Veronica Brown in London; Editing by Marguerita Choy