Gold slips on Europe debt caution, downgrade warning
LONDON |
LONDON (Reuters) – Gold slipped on Tuesday, hit by persistent fears about Europe’s debt crisis after Standard Poor’s warned it could downgrade euro zone nations if no concrete plans to tackle the crisis emerges, but falls were limited as the euro pared losses.
The rating agency’s warning it may downgrade 15 countries, including Germany and France, came hard on the heels of a Franco-German initiative to enforce budget discipline across the 17-member zone through EU treaty changes.
Spot gold eased 0.2 percent to $1,718.64 an ounce by 1016 GMT, extending a 1.4 percent drop in the previous session. It traded below the 100-day moving average at $1,726.33, which it broke below in the previous session.
U.S. gold shed 0.6 percent to $1,723.20
Investors will keep a close eye on an EU summit in Brussels on Friday where the focus will be squarely on new rules to tighten fiscal integration. Analysts say a summit that falls short could lead to a harsh market reaction that could force a rapid reappraisal by policymakers.
Helping to limit falls for gold, the euro pared earlier falls against the dollar. A strong dollar makes commodities priced in the U.S. unit more expensive for holders of other currencies. FRX/
“The market is currently being driven by politics and particularly by development in the euro zone. I expect there is now some caution with the meeting on Friday and the ECB meeting on Thursday,” Peter Fertig, consultant at Quantitative Commodity Research said.
Although gold is regarded as a safe haven asset to shield investors in times of uncertainty, it has increasingly become prone to pressure from selling in the wider financial market, moving in tandem with other assets as investor sentiment remains fragile.
ECB EYED
Investors are also likely to closely watch a European Central Bank meeting on Thursday, with the central bank expected to cut its main interest rate for the second month running in a move that would take it back to a record low of 1.0 percent or lower if the bank decides a 50 basis point cut is needed.
Australia’s central bank cut interest rates by a quarter point to 4.25 percent on Tuesday as tamer inflation at home allowed it to take out some policy insurance against the debt crisis engulfing Europe.
Monetary policy easing raises the inflation outlook and benefits gold, seen as a good inflation hedge.
“Apparently, $1,750 is a tough resistance to break. The market is in need of strong fundamental impetus to break above this mark. Thursday could provide such an impetus as the ECB will meet for its policy meeting,” Credit Suisse analyst said in a note.
“Ahead of the ECB meeting, we think sideways trading is the most likely outcome.”
Trading volumes were also expected to drop off as many traders having closed books to lock in profit before the end of the year, reducing liquidity in the market and increasing the volatility.
Holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, stayed unchanged at 1,297.929 tonnes by December 5, just below a nearly four-month high of 1,298.534 tonnes hit on November 30.
Silver slipped 0.1 percent to $31.95, while palladium was also down 0.1 percent to $1,514.75.Platinum fell 0.1 percent to $629.97.
(Editing by William Hardy)
Article source: http://feeds.reuters.com/~r/reuters/INbusinessNews/~3/gN7mntg0B0M/markets-precious-idINDEE7B508220111206
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