Gold drops as safe-haven bids fade, Wall St advances

NEW YORK/LONDON | Thu Nov 10, 2011 3:29pm EST

NEW YORK/LONDON (Reuters) - Gold fell for a third consecutive day on Thursday, its longest losing streak in nearly a month, hit by technical weakness and unwinding safe-haven play as nervous investors reacted to headlines painting a mixed picture of Europe's debt crisis.

Bullion fell on new market optimism that Italy moved closer to a national unity government, which followed Greece's lead in seeking a former European Commissioner to pilot painful economic reforms to avert a euro zone bond market meltdown.

Sharp losses in other safe havens, led by the U.S. Treasuries, also weighed on gold after a lackluster auction of the 30-year debt. Volatility stemming from Europe caused dramatic price swings and scared away some investors. The S&P 500 rose but industrial metals led by copper tumbled.

"A combination of Wall Street's rebound and some optimism from Europe at least for now have contributed to the down move as the year end is approaching. Technicals played a part as well as support at $1,755 was breached," said Bruce Dunn, vice president of trading at bullion dealer Auramet.

Spot gold fell 0.6 percent to $1,758.90 an ounce by 3:03 p.m. EST.

U.S. gold futures for December delivery settled down $32 at $1,759.60 an ounce. Trading volume was about one fifth above its 30-day norm, bucking the recent slower pace for a second straight session.

Earlier in the session, gold futures losses accelerated as the market fell below chart support near recent lows at $1,755 an ounce. December hit an intraday low of $1,736.60 an ounce.

Gold has confounded market watchers by refusing to behave like a safe-haven and instead has tracked equities over the past few weeks, but the escalating European debt crisis could see bullion ditch its risk-asset mantle and return to record highs.

Follow-through margin calls in other markets also weighed in the early sessions, a day after bullion saw small losses while Wall Street tumbled almost 4 percent and the dollar surged, analysts said.

"Momentum trading driven by technical triggers since Wednesday morning has driven continued downward pressure on the precious metals," said Miguel Perez-Santalla, vice president at Heraeus Precious Metals Management.

"The fact that LCH Clearnet raised margins on the Italian Bonds may have caused liquidation of other assets to meet margin demands," he said.

On Wednesday, European clearing house LCH.Clearnet SA increased the margin on debt from Italy at a time when bond yields in the euro zone's third largest economy were close to levels deemed unsustainable.

New York's SPDR Gold Trust, the biggest gold-backed ETF, said its holdings rose 0.24 percent on Wednesday from Tuesday, while that of the largest silver-backed ETF, New York's iShares Silver Trust gained 0.26 percent.

http://www.reuters.com/article/2011/11/ ... ZX20111110