Gold hit a one-week low on Monday, breaking through key psychological support at $1,100 an ounce as the euro extended losses versus the dollar, with the market awaiting fresh news on a potential bail-out for Greece. Investors are also nervous that a surprise 25-basis-point rate hike in major bullion consumer India could herald monetary tightening, which would raise the opportunity cost of holding non-interest-bearing gold.
Spot gold hit a low of $1,092.25 an ounce and was bid at $1,097.20 an ounce at 1503 GMT, against $1,106.55 late in New York on Friday. Standard Chartered analyst Daniel Smith said a range of issues was curbing appetite for gold. "As we saw these renewed worries about Greece coming to the fore, and the hike in Indian rates, it made people a bit concerned about the outlook (for gold)," he said. "The stronger dollar helped take things lower as well."
US gold futures for April delivery on the COMEX division of the New York Mercantile Exchange slid $10.80 to $1,096.80 an ounce. Concern over Greece's fiscal health resurfaced at the weekend ahead of a European Union summit later this week.
The euro fell to a three-week low against the dollar on Monday, pressured by uncertainty about whether the country would be able to secure aid this week to help service its debts. European leaders sent out conflicting signals at the weekend over aid to Greece, with Germany's Angela Merkel urging Athens to solve its debt problems alone and Italy's Silvio Berlusconi strongly backing EU support.
"There is still plenty of confusion about a bail-out for Greece," Credit Agricole said in a note. "Merkel dampened expectations of a bailout by stating that it was not even on the agenda for the summit." "In contrast, EU President Barroso has pushed EU members to agree on an explicit stand-by aid agreement for Greece as soon as possible... All of this suggests more downside for EUR/USD, with a test of support around $1.3422 looming."
Oil prices fell more than 2 percent to $79 a barrel as nagging worries over Greece's debt and the surprise interest rate hike by India at the end of last week stoked concern over demand. Among other precious metals, silver was bid at $16.75 an ounce against $16.93, platinum was at $1,583 an ounce against $1,604.50, while palladium was the biggest faller, slipping to $453 against $467.
Both platinum and palladium are consolidating after posting hefty gains at the beginning of the month after car sales data from the key US and Chinese markets cheered investors. The metals are primarily used in autocatalysts. "As long as the Chinese automobile market is in a boom and American sales continue to grow, a change in palladium's trend is not to be expected, more so when industrial demand is supported by investor interest," precious metals house Heraeus said in a note. "Though...we do not see a price sustained above $500 an ounce, we continue to recommend to industrial end-users to buy the larger dips."
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