July 18, 2012 / 12:56 AM / 7 years ago

Gold slips as euro falls and after Fed disappoints

LONDON (Reuters) - Gold prices eased on Wednesday as speculation receded that more measures to stimulate the U.S. economy were imminent, and as the euro fell after a media report cited comments from German Chancellor Angela Merkel on the currency’s uncertain future.

An employee picks up a gold bar at the Austrian Gold and Silver Separating Plant 'Oegussa' in Vienna August 26, 2011. REUTERS/Lisi Niesner

Prices had risen towards $1,600 an ounce on Tuesday on anticipation Fed chairman Ben Bernanke would hint in remarks before the Senate Banking Committee at another round of gold-friendly bond-buying, or quantitative easing (QE).

His failure to do so led many to cash in gains, before a rebound in stock markets after some better-than-expected earnings reports helped the metal recover. .EU

Spot gold was down 0.6 percent at $1,573.41 an ounce at 1332 GMT, while U.S. gold futures for August delivery were down $16.30 an ounce at $1,573.20.

Bernanke will return to centre stage at 1400 GMT to testify before the Financial Services Committee, but is unlikely to add substantially to Tuesday’s remarks, analysts said. <M/DIARY>

“We’re getting these periods when there is a lot of expectation, and then disappointment. It’s happened quite a lot in gold, but generally the market feels pretty weak,” Jeremy East, head of commodity derivatives at Standard Chartered, said.

“We’ve seen the Indian demand picking up as the currency seems to be strengthening slightly, but India has been a big focus in terms of not being there,” he said. “You would need to have quite a big drop in gold in order to attract buying back.”

In the absence of physical demand, gold has reacted mainly to moves in the dollar and talk of more QE, which would maintain pressure on long-term interest rates, making potential returns from holding gold more attractive.

The euro fell to a session low against the dollar and German Bund futures reversed earlier losses, with traders citing a media report that quoted German Chancellor Angela Merkel as saying she could not be sure the European project would work.

Merkel went on to say she was optimistic the project would succeed - a reiteration of her usual line on the topic.


Hints fresh easing could be on the cards have sparked a number of gold rallies this year, but it has remained rangebound between $1,540-1,640 for the last six weeks, awaiting direction.

“No doubt, the gold bulls will seize on the fact that further stimulus is not off the table, but it is not going to happen for a while, if it ever does, and as such the upside for gold remains limited to my mind. We are still in the same ranges,” Marex Spectron said in a note.

“I see no reason for the time being for that to change. The market remains thin, with low volumes and no real interest.”

Among other precious metals, silver was down 0.8 percent at $27.09 an ounce, tracking losses in gold. Silver has underperformed gold this year, easing just over 2 percent against gold’s 1 percent gain.

The metal has suffered from a dearth of investment demand this year after a number of severe corrections in 2011, soft industrial offtake and record-high mine supply.

Spot platinum was down 0.8 percent at $1,401.90 an ounce, while spot palladium was down 1.1 percent at $573.45 an ounce. The metals have also underperformed gold this year, with palladium falling nearly 12 percent since December, as demand from the automotive sector, the main consumer of platinum and palladium, remains weak.

Even the threat of supply disruptions in major producer South Africa, where miners have struggled against labor unrest, rising costs and sluggish prices, has not galvanized the market.

“Costs have continued to increase in 2012,” RBS said in a note on Wednesday. “For the year in full, our price forecasts suggest the South African 4E basket will average (around) 10,100 rand an ounce.” That basket includes platinum, palladium, rhodium and gold.

“We reiterate our view that this situation is not sustainable and note that this is the main driver of our bullish outlook for the platinum price,” it said. “We forecast a fourth-quarter average of $1,650 an ounce, compared to current levels around $1,420 an ounce.”

Editing by Jeremy Gaunt

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