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Gold loses footing as US dollar jumps

Singapore, June 16, 2011

Gold lost its footing on Thursday after the US dollar jumped against other currencies, but euro zone debt jitters could limit losses as investors fretted about the lack of resolution to solve the crisis in Greece.

The Greek prime minister said he would form a new government as euro zone finance ministers conceded that a deal on a second international bailout of the ailing country was now unlikely to be reached at a summit next week.

Spot gold fell $3.32 an ounce to $1,526.53 an ounce by 0239 GMT after rising for a second straight session to around $1,533 on Wednesday on declines in equities. Gold is well below a lifetime high around $1,575 touched in early May.

"Investors are skeptical that a new government will be able to convince the disillusioned masses to accept more austerity measures. Instead, much needed budget cuts could be delayed,” said Ong Yi Ling, investment analyst at Phillip Futures.

"Until Greece produces a plan for future debt sustainability, aid could be withheld. As the likelihood of a technical default increases, a flight to safety could cause gold and the dollar to rise in tandem."

The dollar held at three-week highs against a basket of major currencies on Thursday, having staged its biggest rally in 10 months on a wave of short covering as concerns over Greece's debt crisis hit the euro.

The dollar index jumped 1.7 per cent -- its biggest one-day per centage gain since August 2010 -- to three-week highs of 75.659. It last traded at 75.575.

The escalating Greek problems and data showing the US economy is facing a troubling mix of weaker growth and higher prices triggered selling on Wall Street, adding to pressure on Asian equity markets and other riskier assets on Thursday.

The physical market was subdued after some trading was reported overnight. Premiums for gold bars were steady at 60 to 80 cents an ounce to the spot London prices in Singapore.

"I guess the premiums are competitive at 80 cents. I am just trying to push for some volume among the small tiny ripples," said a dealer in Singapore.

"We did see some buying and selling last night, but still there was nothing significant."

Silver lost 16 cents to $35.61 an ounce, below a record at $49.51 an ounce in April.

"In our view, interest in silver is likely to be muted over the summer months, particularly as the metal lacks support on the economic front," BNP Paribas said in a report. "While silver may outperform gold towards the end of the year, we do not expect the gold/silver ratio to  decline back to the low 30s."

The gold-silver ratio, used to measure how many ounces of silver can buy one ounce of gold, was at about 42 after falling to around 31 in late April, its weakest since early 1980s.

In the energy market, US crude futures rose and Brent crude also swung back to rise more than $1 in the wake of a larger-than-expected draw in US crude stocks and the recovering euro, after the market tumbled on Greek debt woes. – Reuters




Tags: Brent | Gold | Singapore | Crude | Silver | US Dollar |

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