Gold slips to one week low on Euro debt

A spat between France and Germany on Wednesday over whether the European Central Bank should intervene more forcefully to halt the euro zone’s accelerating debt crisis raised doubts about the Euro leaders capability to find a solution.

The bark in the Euro zone and the spat between Germany and France is pulling gold down,Credit Agricole analyst Robin Bhar said. It is a bit surprising that gold continues to act like a risk asset rather than as a safe haven but in the short-term there is more need for dollars rather than need to hold profitable positions in gold.

Spot gold edged down 0.79 per cent to $1,747.60 an ounce by 1309 GMT,from $1,762.29 late in New York on Wednesday.

Weighing on gold,the euro slipped back towards five-week lows against the dollar,undermined by soaring yields at a Spanish bond auction that fueled concerns about debt contagion and drove investors to safe-haven currencies.

A stronger US currency makes dollar-priced commodities such as precious metals costlier for holders of other currencies.

Given the funding stress in the banking sector negatively affecting a number of investment classes,many are liquidating their profitable gold positions to pay losses in other assets,analysts said.

This is likely to continue for the next few weeks as the financial year-end approaches for a number of market players and book squaring may prompt more liquidation.

The long-term outlook however,remains bright for gold,as physical demand has increased lately with investors and banks looking to stock up on secure assets.

BULLISH DATA

Demand for gold rose by 6 per cent to a 1-1/4 year high in the third quarter of 2011,driven by central bank purchases and European demand for bullion against the backdrop of the escalating euro crisis,according to a report by the World Gold Council (WGC).

After a 20 per cent slump in the third quarter from the previous,gold imports to India,the world’s biggest consumer of bullion,are likely to recover in the last quarter of 2011 as demand emerges from traders who destocked in the third quarter of the current year,the World Gold Council’s India head said.

Crucially,in today’s report,the WGC note that additional purchases were made by a number of countries’ central banks,which cannot currently be identified due to confidentiality restrictions,UBS said in a research note.

The gap between the known purchases and the confidential ones is very significant. This information is very bullish. And no doubt the market will be busy speculating on the identity of such buyers.

Even a move by hedge fund manager and long-time gold bull John Paulson to slash ETF bullion holdings by a third does not appear to be a sign that he is abandoning his upbeat view of the metal,industry sources and analysts said.

Paulson may be moving to gold equities or physical gold. After all even with ETFs there is counter-party risk,Bhar said. He may be switching holdings from one gold vehicle to a safer gold vehicle.

Holdings of the largest gold-backed exchange-traded-fund (ETF),New York’s SPDR Gold Trust climbed 0.72 per cent from Tuesday to Wednesday,while that of the largest silver-backed ETF,New York’s iShares Silver Trust remained unchanged for the same period.

Spot silver fell 1.72 per cent to $33.08 an ounce from $33.68 late in New York on Wednesday,platinum fell 0.65 per cent to $1,601.50 an ounce from $1,612.7 and palladium fell 2.21 per cent to $630.47 an ounce from $644.72.