US MIDDAY: gold reverses gains

Spot gold turned lower in New York early on Thursday, giving up earlier gains and hitting a 2-1/2-month low, on the back of fund selling even as the dollar remained under pressure. Breaking its traditional inverse correlation with the dollar, prices turned south midmorning in New York as short covering that had boosted prices earlier in London petered out and selling by funds ahead of the year-end re-emerged.
"You have forced selling of gold as investors were getting margin calls and I heard discussions of hedge funds closing. The selling pressure is being put on one asset that's up in value for the year in a notable amount," said Mark Luschini, chief investment strategist of broker-dealer Janney Montgomery Scott with about $54 billion in assets under management. Spot gold was down 0.27 percent at $1,569.99 ounce at 1257 in New York, building on its biggest one-day decline in nearly three months on Wednesday, on pessimism about the eurozone economy and fund liquidation.
Bullion hit a session low of $1,560.36, a low last seen at the end of September when the last major sell-off took place. At that time, there was talk hedge fund manager John Paulson might have liquidated his holdings to meet end-of-year client redemptions. Regulatory filings in November showed Paulson & Co had cut its gold holding by a third in the third quarter.
US gold fell 0.89 percent to $1,569.64 an ounce. The precious metal has lost 11 percent of its value this month, putting it on track for its first monthly fall since September and its weakest December since 2008, when the global credit crunch was at its worst. Bullion fell in tandem with dollar, breaking ranks with the euro, which was up 0.17 percent at $1.30 against the dollar after hitting an 11-month low on Wednesday.
The market is likely to remain weak until the new year as year-end fund selling continues without any industrial buying, said Miguel Perez-Santalla, vice president of sales at Heraeus Precious Metals Management. Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, were unchanged at 1,294.796 tonnes by December 14, even while prices fell.
"Investors with a medium- and long-term view are remaining loyal to gold, and gold ETFs are still showing no outflows. In our view, bargain hunters are soon likely to take advantage of the low price levels," Commerzbank analysts said in a note. Spot silver clawed back earlier losses to rise 1.07 percent to $29.18 an ounce after hitting a low last seen in late September. The metal has fallen about 10 percent so far this week, pushing the year-to-date performance into the red. Spot platinum tumbled 0.99 percent to $1,402.99, after earlier hitting a two-year low of $1,372. Palladium rose 1.18 percent to $620.97 an ounce.