Gold lost nearly 1 percent of its value in thinner-than-usual trade on Monday, after Japan's intervention to weaken the yen sent the dollar soaring and commodities and other risk assets into a tailspin at the start of the week. The currency-led selling pressure dragged bullion down for a second-straight day, extending a phase of consolidation from last week's short-covering surge that lifted the price to its highest level in more than a month, above $1,750 an ounce.
"The movements in the dollar ... you have to chalk that up as the number-one negative for commodities in general on the day," said Bill O'Neill, partner of LOGIC Advisors in Upper Saddle River, New Jersey. "It's more of a risk-off day ... gold has become a very choppy, volatile trading affair, which makes it a little less attractive as a flight-to-safety vehicle," he said.
Helping gold recover some of the day's losses was the New York Federal Reserve's decision to suspend conducting business with troubled brokerage MF Global, which scrambled over the weekend to find buyers for all or part of the company and hired bankruptcy and restructuring advisers.
Spot gold was down by 1.2 percent at $1,720.79 an ounce at 12:23 pm EDT (1623 GMT). Despite the loss, it was in line for a 6-percent gain this month, recovering from a near-11 percent slide in September, when prices hit a record $1,920.30. In New York, the benchmark December COMEX contract was off $24.20 or 1.4 percent at $1,723 an ounce. Futures volume dropped to about 40 percent below the 30-day norm, according to Thomson Reuters preliminary data.
"MF Global was not a big surprise. Clearly it's not a bank, it's not on the scale of Lehman Brothers, but that is what helped the (gold) market to bounce off today's lows," said VTB Capital analyst Andrey Kryuchenkov. Buyers in the physical market were on the sidelines, which led to gold bar premiums easing to a range between $1 to $1.50 an ounce over spot prices, from about $1.50 last week.
In exchange-traded fund flows, global holdings of gold ended last week with a 543,000-ounce inflow, the largest weekly increase since the week ending August 19. So far in October, global gold ETF holdings have risen by more than 714,000 ounces to their highest in five weeks at 67.769 million ounces. This would be the first monthly rise in holdings since July. In other precious metals, platinum was last down over 2 percent at $1,607.75, while palladium was down at $648.72 and silver shed more than 2 percent to $34.22 an ounce.