Gold posts lowest level this year

Gold prices fell nearly 2 percent to below $1,090 an ounce on Thursday, their lowest level this year, as the dollar hit a near six-month high versus the euro, cutting buying of the precious metal as an alternative asset. Spot gold hit a low of $1,088.30 an ounce and was bid at $1,089.55 an ounce at 1627 GMT, against $1,111.10 late in New York on Wednesday.
US gold futures for February delivery on the COMEX division of the New York Mercantile Exchange fell $22.90 to $1,089.70 an ounce. The euro slumped to a nearly six-month-low on Thursday, pressured by concerns over a swelling budget deficit in Greece, which sparked worries about debt held by several other eurozone countries.
Strength in the dollar reduces gold's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies. Daniel Major, an analyst at RBS Global Banking & Markets, said the dollar had broken through key technical levels and was expected to firm further. "Gold could see more downside from that," he said.
Holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, were steady on Wednesday, but are down 21.7 tonnes or 1.9 percent this year. In the same period of 2009, they rose 22.7 tonnes. Holdings of the main silver ETF, the iShares Silver Trust, have also fallen 154 tonnes in 2010 to date.
Traders say some investors with an interest in precious metals ETFs are pulling money out of the SPDR and the iShares fund in favour of new US platinum- and palladium-backed ETFs. In India, historically the world's largest consumer of gold, traders continued to buy as prices hit new two-week lows. Among other precious metals, spot platinum was at $1,593.50 an ounce versus $1,622.50, while palladium was at $452.50 versus $465.
Lease rates for the two metals have risen steadily since the launch of the ETFs operated by a US unit of London's ETF Securities, dealers said. Silver was at $17.38 an ounce against $17.87, following gold lower. "Since silver tends to disproportionally track the movements of gold, and since we expect the gold price to correct in the spring, silver is likely to weaken temporarily as well," Commerzbank said in a note. "Prices could fall to as low as $15.00 an ounce."