February 6, 2012 / 1:00 AM / 8 years ago

Gold slips as Greek bailout talks hurt euro, stocks

LONDON (Reuters) - Gold prices fell on Monday, extending the previous session’s 2 percent price drop, as concerns over the progress of Greek bailout talks weighed on the euro and on assets seen as higher risk, such as stocks and commodities.

An employee displays a gold tooth at a shop that purchases gold in the Ginza district of Tokyo August 23, 2011. REUTERS/Toru Hanai

Spot gold was down 0.5 percent at $1,716.44 an ounce at 1442 GMT, while U.S. gold futures for February delivery were down $21.10 an ounce at $1,719.20.

The precious metal posted its worst daily performance of the year on Friday after better-than-expected jobs data dampened expectations of another round of U.S. monetary easing.

It is still up nearly 10 percent this year, but if more signs emerge that the economy in the United States is recovering faster than the euro zone, pointing to an earlier-than-expected rise in U.S. interest rates and a stronger dollar, gold may struggle to revisit its highs.

“As long as the United States maintains its modest growth and the EU continues to disappoint, you would expect the dollar would continue to strengthen, and that wouldn’t be positive for gold,” said Carl Firman, an analyst at VM Group.

The euro fell as Greek politicians struggled to agree on austerity measures needed to secure a new bailout for the debt-laden nation, keeping alive the risk of a messy default that could hurt the euro zone.

Greece has already gone beyond the deadline for finalizing talks on the second euro zone and the International Monetary Fund financing package, and urgently needs to make decisions, the European Commission said on Monday.

Although the debt crisis was a major driver of record-high gold last year as investors bought the metal as a haven from risk, prices have in recent months tended to move more in line with so-called riskier assets, like other commodities.

“Safe-haven buyers still exist, they’re just far less of a force than they were at the peak of the sovereign debt crisis,” said RBS analyst Nikos Kavalis. “For the time being, we see gold over the next few months appreciating with other commodities.”

“Its inflation-hedging properties, its anti-ultra loose monetary policy (qualities) are in our view what will drive gold. Risk in the market is one of the supporting factors, but the monetary policy outlook is really the key factor.”


On other markets, European shares fell back from a six-month peak on Monday due to fears about Greece. Its travails also pressured the broader commodities markets, pushing crude oil prices lower and weighing on industrial metals.

Demand for physical gold from key Asian markets was strong, however, as buyers took advantage of Friday’s price drop to re-enter the market.

“There is some buying after Friday’s fall in prices,” said Harshad Ajmera, proprietor of JJ Gold House in Kolkata. “People are comfortable at these rates.”

Gold coin retailers and physically backed investment products such as exchange-traded products also had a strong start to the year. The U.S. Mint reported its best monthly sales of American Eagle gold coins in a year in January.

“Gold held across the physically backed ETPs rose by 20 tonnes last week, (and) preliminary inflows for January are 24.5 tonnes, mostly reversing the net redemptions in December,” said Barclays Capital in a note.

Silver prices eased in line with gold to $33.33 an ounce, down 0.8 percent. Spot platinum was down 0.5 percent at $1,608.74 an ounce, while spot palladium was down 1.4 percent at $695.50 an ounce.

“Last Friday’s upside surprise in U.S. employment data was positive for palladium as it was for risk in general,” said UBS in a note. “The fact that palladium has greater exposure to the U.S. auto market and therefore benefits from improving economic prospects was well reflected in the metal’s outperformance.”

“The slow improvement in investor sentiment for palladium and the expansion in positioning, though influenced by risk appetite, is an expression of market participants’ expectations for positive fundamentals up ahead.”

Editing by James Jukwey and Alison Birrane

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