Thursday, 17 May 2012 03:08
NEW YORK: Gold sank to a 2012 low on Wednesday before paring losses in choppy trade, as traders were torn between hope that France and Germany would work together to keep the Euro zone intact and new signs of stress in the Greek banking sector.
Bullion briefly crossed into bear market territory, down 20 percent from its record last September, as intensifying fears a Greek exit from the euro zone would worsen the debt crisis gripped financial markets earlier in the day.
Prices later recouped most of their losses following a meeting between new French President Francois Hollande and German Chancellor Angela Merkel at which they pledged to forge a joint approach for an EU summit next month. That eased concerns of a spat that could worsen the euro zone crisis.
During the US session, gold prices traded on either side of parity amid a handful of mixed signals: data showing home building and factory activity gained momentum last month; news that the European Central Bank stopped funding operations for some Greek banks because they had not been recapitalized; and Federal Reserve minutes showing that several policymakers last month were open to doing more to aid the recovery.
By day's end, US stocks were marginally lower, the dollar was marginally higher and gold little changed as traders braced for the next twist in European financial drama.
"Negative market sentiment seems well entrenched and we may see further downside in the price," BNP Paribas analyst Anne-Laure Tremblay said. "In particular, we could see further cross-asset liquidation if the probability of a Greek default increases in the next weeks."
Spot gold slipped $4 or 0.3 percent to $1,539.86 an ounce by 3.35 p.m. EST (2035 GMT), as Euro woes resurfaced. It hit a session low of $1,527 -- the lowest since December. Gold's stretch of losses are the longest since December.
US gold futures for June delivery slid more sharply, falling 1.2 percent or $18.5 an ounce at $1,538.86 and hitting the lowest price for a most-active contract since July.
Silver prices continued to slide more quickly than gold, dropping 2 percent, or 55 cents to $27.14 an ounce for an eighth straight decline. That is its longest losing streak since a 10-day decline that began in late August 2008, just before the global financial crisis hit Wall Street.
Throughout the day traders were riveted to Greece, where citizens were pulling euros out of banks for fear their country may leave the euro zone. Anxiety grew after news the ECB had stopped lending to some Greek banks, despite Merkel's efforts to quell fears by committing to keep Greece in the union.
News overnight that big hedge fund investors, including John Paulson, had not shed more gold holdings in the first quarter failed to dispel the sense that gold was susceptible to further losses, tethered to other industrial commodities and financial markets that are once again in thrall to Europe.
"It's difficult to see a turnaround just yet. There will be one, but I don't think this is the time, just when we are in the eye of the storm," Societe Generale analyst Robin Bhar said.
"Clearly, with people staring into the abyss, it could (fall) $50 or even $100 lower as it washes out. That is the unpredictability of it all and as equities fall, as the Greeks take money out of the banks and the banking sector collapses, I suppose you'd have to be wary of further price falls just to cover for losses in other markets," he said.
BIG BULLS HOL
In a small positive for gold, billionaire fund manager John Paulson held on to his stake in the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, in the first quarter of 2012, a regulatory filing showed on Tuesday.
The prospect of improvement in physical demand for gold from the Indian jeweler sector took a knock on Wednesday with the drop in the rupee to a record low against the dollar, driven by the widespread risk aversion.
Buying in India, the world's largest bullion consumer, has emerged with the decline in the dollar-denominated gold price to 4-1/2 month lows this week, but local dealers have said the weakness in the rupee could curb this.
"Definitely physical buying has gone up, although demand is not overwhelming," said a dealer in Singapore.
"India did buy gold last night. They are not really in the market yet today, but I am sure they will be buying."
The wedding season is underway in India and will taper off by the end of the month. Gold jeweler is an essential part of the dowry Indian parents give to their daughters at weddings.
Silver fell 2.1 percent to $27.10 an ounce, taking eight-day losses to more than 13 percent, while gold has fallen about 8 percent over the same period.
Platinum ended almost unchanged at $1,427 an ounce, on the verge of wiping out all of its gains for the year to date. Palladium slid 0.7 percent to $589.22, having fallen to its lowest since late November.
Copyright Reuters, 2012