Gold Down with Euro, Growing Concern Over Growth Posted by Adam King on October 10, 2012
Gold dropped on Wednesday, in line for a session that could make for the first four-day losing streak in the precious metal since August as markets took direction from weakness in the euro while concern in peripheral euro zone economies mounts and contributes to concern about the greater global economy.
Investors have been looking for stability in the dollar, which has retained a monthly high against a basket of currencies as a lack of a clear timetable for the Spanish bailout contributes to euro zone concerns.
The International Monetary Fund released its expectation for a Spanish public deficit of 7 percent of GDP in 2012, a prediction that sent yields on the 10-year Spanish bonds nine basis points higher to 5.93 percent.
The IMF recently reduced its global growth forecast for 2012 to 3.3 percent from an earlier forecast of 3.5 percent and the central bank has forecast a contraction in the euro zone to 0.4 percent.
The spot price of gold, usually pressured by a strong U.S. dollar, drifted 0.1 percent lower to $1,762.84 per troy ounce, near a 10-day low for the precious metal. U.S. gold futures were also lower, at $1,763.40 per troy ounce.
David Jollie of Mitsui Precious Metals, speaking to Reuters, said in the short-term foreign exchange movements are what is propelling gold. He points out it is difficult to know whether it is dollar strength or euro weakness, but in the markets there is still clearly a concern about what might happen to the euro.
The euro traded 0.1 percent lower against the dollar on Tuesday. European and Asian stocks also traded lower.
Some analysts are saying bullion may have simply run out of steam following a rally in the third quarter that took prices to 11-month highs above $1,795 as central banks around the world loosened monetary policy.
HSBC said in a note to its clients that with the market stumbling in sight of $1,800 per troy ounce, they believe the path of least resistance is lower in the near term. They added the long-running rally is intact, and that they expect the gold prices will revive following a period of consolidation.