Business Day

Gold eases as euro zone debt concerns persist

In the summer months gold rose strongly in times of risk aversion as investors sought it out as a safe haven, it is now moving more in line with assets seen as higher risk, like stocks and the euro, which tend to rise at the dollar’s expense

JAN HARVEY

Published: 2011/12/22 05:02:01 PM

Gold was down a touch on Thursday, recovering from early lows as the euro rose versus the dollar but struggling to gain traction as concerns over the depth of the euro zone crisis simmered and traders held off taking new positions ahead of year-end.



Spot gold was down 0,1% at $1 613,39 an ounce at 1256 GMT, recovering from an earlier low of $1 602,04. Prices are well off the record $1 920,30 an ounce they hit in early September, but remain up 13% on the year.



While in the summer months gold rose strongly in times of risk aversion as investors sought it out as a safe haven, it is now moving more in line with assets seen as higher risk, like stocks and the euro, which tend to rise at the dollar’s expense.



"People are not looking at gold as a safe haven, and that is one of the reasons for this lacklustre performance," said Commerzbank analyst Eugen Weinberg. "I wouldn’t be surprised to see further weakness in gold prices going forward."



"The price increase before was also due to speculative interest, and that seems to be abating, which I find healthy.



Gold will be forming a bottom in the coming months, and due to the higher risks ahead, I think prices are likely to increase."



Stock markets rose in Europe, led by banking stocks, and the euro climbed as buyers hoped the nearly half a trillion euros in three-year funds that banks borrowed on Wednesday from the European Central Bank will ease current funding strains.



Safe-haven German government bonds eased a touch. Despite the cautious optimism that is lifting the markets, concerns remain that the euro zone debt crisis could worsen.



"While (the loan) may buy vulnerable banks some time, it is certainly no solution to the wider problem of slow or no growth," said CMC Markets analyst Michael Hewson.



"Furthermore the failure to deal with the failing banks also puts the good banks under pressure, as there is no discernible way to distinguish them."



The threat of mass credit ratings downgrades for euro zone countries is still hanging over the market, with Standard & Poor’s yet to announce if it will cut ratings on any of the 15 countries it has on credit watch negative.



US gold futures for February delivery were up 80 cents an ounce at $1 614,50.