24 Aug, 2010, 06.32PM IST,REUTERS

Gold slips below $1,220/ounce as euro, equities sink

Gold prices slipped in Europe on Tuesday to their lowest in more than a week, caught up in selling of other assets such as equities, oil and the euro, as investors fretted over the outlook for the global economy.

While these concerns are likely to support gold in the medium run, gold is being sold in the short term to cover losses on other markets, analysts said.

Spot gold touched a low of $1,216.40 an ounce and was bid at $1,217.60 an ounce at 1209 GMT, against $1,223.40 late in New York on Monday. US gold futures for December delivery fell $9.00 an ounce to $1,219.50. Gold hit a 1-1/2 month high at $1,237.15 an ounce last week as concerns over the global economic recovery fuelled interest in the metal as a haven from risk, but has since retreated.

"Last week as we started to see euro zone risk rise, there was a pick-up in defensive buying out of Europe," said Credit Suisse analyst Tom Kendall. "But with everything else sliding lower, and the dollar coming back a bit, it is struggling."

"But I don't think it is going to struggle for too long with this risk-aversion environment," he added. "Money is going to continue flowing into longer-dated Treasuries and gold." European shares fell to one-month lows on Tuesday, tracking losses overnight in Asia, as investors worried about an anaemic global recovery.

US stock index futures also pointed to a lower opening on Wall Street. On the bond markets, September Bund futures hit a record high of 133.40. Bund futures have risen more than 500 ticks since July 27 as the global outlook deteriorated. Such concerns also weighed on industrial commodities, with crude oil falling more than 1 percent and base metals like copper, zinc and nickel also sliding.

The dollar hit six-week highs against the euro. Strength in the US unit typically weighs on gold, curbing its appeal as an alternative investment and making dollar-priced assets more expensive for other currency holders.

YEN SCALES PEAKS

Meanwhile, the yen hit a 15-year high against the dollar and a nine-year peak versus the euro as investors tested the resolve of Japanese authorities to intervene and stem the yen's rise. "This week we've seen some liquidation (of gold) come to the fore on Tocom, with some of the Japanese investors repatriating cash into yen," Kendall noted. Investors will be closely watching US existing home sales data for July, due for release at 1400 GMT, for its impact on the financial markets.

"They are widely expected to fall sharply, reflecting the sharp declines already seen in property deal signings after the expiry of tax incentives to buyers," Credit Agricole said in a note. "With the mood of the market currently, however, the fact that the drop was expected will not prevent the spin from being gloomy," it added.

Further concerns about the strength of the economic recovery could spark new interest in gold as a safe haven, analysts said. Silver was at $17.84 an ounce versus $17.93, platinum was at $1,493 an ounce versus $1,504.50 and palladium at $476.50 against $481. Platinum and palladium are chiefly used in autocatalysts, and have been heavily exposed to the global economic slowdown.

However, palladium has slightly outperformed platinum, as its potential for demand growth is seen as stronger. Palladium prices have slipped only 2.9 percent this month so far, compared with a near 5 percent drop in platinum prices. In the year to date, palladium has risen 17.5 percent, compared with a 1.4 percent rise in platinum prices.

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