Gold holds below $1,620/oz

A woman is reflected on a mirror inside a gold jewellery shop in the western Indian city of Ahmedabad.

A woman is reflected on a mirror inside a gold jewellery shop in the western Indian city of Ahmedabad.

Published Jun 14, 2012

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Gold held below $1,620 an ounce on Thursday, taking a breather after four sessions of gains, as caution ahead of this weekend's Greek elections and a rise in Spanish borrowing costs to record levels stoked risk aversion, holding the euro in check.

This week's gains were firmly underpinned, however, by speculation that the Federal Reserve would unveil a fresh round of quantitative easing, which roughly translates into printing money, after weak retail and inflation data on Wednesday.

Spot gold was at $1,617.81 an ounce at 11:40 SA time against $1,617.08 late on Wednesday. US gold futures for August delivery were down 10 cents an ounce at $1,619.30.

Spot prices are up 1.5 percent this week, but trading is cautious ahead of this weekend's Greek elections.

The conservative New Democracy party, which wants to soften the bailout's austerity measures without risking an open clash with Europe, is running neck-and-neck with SYRIZA, which wants to ditch the deal with the European Union and International Monetary Fund and renege on part of the debt.

“The result of the vote will be very important not just to gold but across the whole financial markets next week,” RBS analyst Nikos Kavalis said. “If we get a disappointment, we can expect a massive sell-off across the board.

“(But) if we get a good result we won't necessarily have a massive rally, simply because people aren't necessarily convinced that even if we have a pro-austerity coalition, we are in any way out of the woods.”

Concerns over the euro zone debt crisis are rife. Spanish 10-year government bond yields hit 7 percent for the first time after Moody's cut the country's credit rating to just one notch above “junk”.

The euro briefly dipped to a session low on the news, but quickly recovered. German Bund futures came under pressure for a third day.

“German bund yields have... been rising, behaving more like periphery bonds rather than a safe haven. The spread versus UK gilts - another European sovereign bond that has been considered safer than the periphery - has narrowed substantially this week,” UBS said in a note.

SAFE-HAVEN STATUS

While it is too early to conclude that German bunds are losing their safe haven status, UBS said: “such a scenario... would mean investors would be on the lookout for new 'secure' places to park their money. Given the much-reduced list of alternatives, gold would be one of the top options.”

Europe's top shares fell 1 percent after Moody's downgraded Spain, exacerbating the cautious mood among investors who are bracing themselves for the outcome of the Greek election over the weekend.

Demand for physical gold in Asia stayed sluggish while higher gold prices lured some selling, but most market participants preferred to stay on the sidelines as they waited for a clear direction on spot prices.

Top gold consumer India has entered the monsoon season, marked with a slump in gold purchases. China's jewellery market is also entering the summer lull, with no major festival in sight until early October.

India's gold and silver imports were down 52 percent year-on-year in May, according to a senior trade ministry official, citing provisional data that showed the country's trade deficit widened over the previous month.

Among other precious metals, silver was down 0.3 percent at $28.88 an ounce, while spot platinum was up 1.5 percent at $1,481.24 an ounce and spot palladium was up 0.1 percent at $617.97 an ounce. - Reuters

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