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Gold eases as euro zone concerns persist

London, December 22, 2011

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 0.3 percent at $1,609.69 an ounce at 1057 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 percent 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 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."

Among other commodities, oil prices firmed a touch after data showed a sharp drop in US crude stocks, while base metals prices were largely higher.    

Gold prices are likely to take a breather, analysts said, after failing to hold above the 200-day moving average near $1,621 an ounce, which they fell through last week and briefly rose back above on Wednesday.

"We still see little chance for gains here until year end," said VTB Capital in a note. "Gold will stall below short-term resistance at $1,620, in our view. The market failed to breach it yesterday, also having tested more resistance at $1,640."     

On the physical markets, gold demand in number one consumer India remained sluggish on Wednesday, dealers in Mumbai said, largely due to seasonal factors.  - Reuters 




Tags: Gold | Commodities | Euro zone | metals |

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