Gold prices eased on Monday as a retreat in the euro arrested their rebound from 2012 lows, with investors remaining cautious towards the precious metal as they awaited clearer signals on its relationship to euro zone risk.
Simmering concerns over the euro zone debt crisis have stoked some demand for physical metal as a safe store of value in Europe, dealers said, but bad news from the euro zone also largely weighs on gold via its impact on the currency markets.
Gold prices are vulnerable to weakness in the euro, and consequent gains in the dollar, which makes the metal more expensive for other currency holders. Physical buyers in key consumer India have also been loath to buy.
Spot gold was down 0.3 percent at $1,587.66 an ounce at 16:01 SA time, while US gold futures for June delivery were down $4.00 an ounce at $1,587.90.
“Basically you are looking at range trading from here, since investors are too spooked to go long once again and physical remain absent,” VTB Capital analyst Andrey Kryuchenkov said.
“The market is fairly short, while (speculative) longs are at their lowest since December 8,” he added. “(There are) good grounds here for a rebound, but no conviction.”
Last week, gold fell to its lowest this year at $1,527 an ounce, before staging its biggest two-day rally since October as traders holding short positions rushed to cover.
It struggled to maintain momentum, however, as concerns about Greece and Spain's debt problems hurt the euro. Markets took little comfort from a weekend summit of the Group of Eight economies.
Its leaders stressed that their “imperative is to promote growth and jobs”, while recognising problems among European banks and giving verbal backing for Greece to stay in the euro.
“I suspect that what we saw last week was partly short covering, and that has helped us on the way up, with maybe a little bit of extra safe-haven interest,” Mitsui Precious Metals analyst David Jollie said.
“In the next few weeks leading up to the Greek election, there will be plenty of opportunities for people to worry about the European debt situation and the health of the euro in general. I think that will be positive for gold, certainly in the absence of foreign exchange movements.”
“The short covering is probably a one-off issue, so the strength of this move will be interesting to gauge as a measure of safe-haven interest,” he added.
EURO ZONE TALKS
A rapid deterioration in the crisis over the past few weeks and increasing uncertainty whether Greece will stay in the euro zone prompted talk that French President Francois Hollande and other euro zone leaders will promote the idea of mutualised European debt at an informal summit in Brussels on Wednesday,
The proposal is likely to meet with entrenched opposition from European paymaster Germany.
“(Gold's performance) really all depends on whether (its) new found rally can stand up to what I think will be weakness in the euro over the coming days,” Marex Spectron said in a note.
Data released in the United States on Friday showed hedge funds and other money managers liquidated more than $2 billion in U.S. gold futures over a week, before a forceful rebound in the metal potentially tripped up some of them.
Silver was down 1.7 percent at $28.11 an ounce, while spot platinum was up 0.6 percent at $1,457.99 an ounce and spot palladium was up 2.1 percent at $608.48 an ounce.
Both platinum group metals posted modest losses last week as jewellers, miners, refiners and recyclers met in London for Platinum Week.
“London Platinum Week rammed home the need for some form of short- to medium-term production restraint in the face of weak PGM prices,” RBS said in a note on Monday.
“None of the producers we met up with had any doubt about the positive platinum and palladium demand picture in the years ahead. Of more concern was what to do short term to put a bridge across the current, mainly externally driven price woes.” - Reuters