Spot gold falls 1pc as recession fear prevails

SINGAPORE: Spot gold prices fell more than 1 percent on Monday, extending their loss of 4.6 percent in the previous session, amid wide-spread anxiety about prospects for a global recession as investors cautiously watch European leaders seek new ways to solve the euro zone debt crisis.

Prices of other precious metals also tumbled, led by a 5.3-percent drop in spot silver. The metal, with the dual nature of a precious and industrial metal, fell to its lowest in 7-1/2 months, at $29.39.

The dollar held steady against a basket of currencies , after rallying nearly 6 percent so far this month as investors fled risky assets to seek safe haven appeal in the greenback.

"The dollar still has room to strengthen more in the short term because the fear of crisis is not over," said Dominic Schnider, head of commodity research of UBS Wealth Management in Singapore.

A stronger dollar would pressure gold priced in the greenback, as it becomes more expensive for buyers holding other currencies.

Schnider said gold could fall towards $1,582 in the short term, but remained bullish on the longer-term prospects.

"Our goal at $2,000 remains in place. The structural factors behind high gold prices are still there, but in the short term, we have to acknowledge that if everything collapses, it is tough for gold to advance."

Spot gold fell as much as 1.6 percent to $1,629.89 an ounce, before recovering to $1,633.79 by 0322 GMT. It suffered a decline of 8.6 percent last week, its sharpest such drop in more than 28 years.

US gold edged down 0.2 percent to $1,636.70 an ounce, after suffering its biggest daily drop in more than five years on Friday with a fall of 5.9 percent.

Speculators cut bullish bets in gold futures and options for the sixth time in seven weeks in the week ended Sept. 20, as the price of bullion continued to unravel from its record.

Adding to the bearish sentiment, the CME Group raised margin requirements on gold, silver and copper futures contracts on Friday after market volatility rose dramatically in the past few weeks.

"Retail punters are scared," said a Singapore-based trader, "There is a big dollar buying frenzy now, which is dragging everything down and people have to liquidate just like 2008."

In 2008, spot gold prices initially shot up after Lehman Brothers' bankruptcy, but soon tumbled more than 25 percent within two weeks in October.