Gold prices rose in Europe on Tuesday as the euro strengthened versus the dollar, but gains were capped by concerns that policymakers' efforts to address the euro zone debt crisis are falling short and could keep European assets under pressure.
Spot gold was up 0.8 percent at $1,606.00 an ounce at 12:12 SA time. While spot prices are still up more than 12 percent this year, analysts say they will likely struggle for traction from here if the dollar starts strengthening again.
The dollar's gains versus the euro on the back of the crisis have weighed on gold in recent months, putting the metal on track for its first quarterly loss in more than three years.
“All the bull-run dynamics are still in place, but you have this trend of the strengthening dollar, positive data out of the United States as opposed to weak data out of Europe,” said VM Group analyst Carl Firman.
“A strengthening greenback has traditionally seen gold in dollar terms decline, and that is what we're seeing. For a safe haven, you're looking at the dollar really. There's a lot of volatility in gold, in commodities, in other asset classes.”
The euro rose 0.4 percent versus the dollar after yields at a Spanish treasury bill auction came in lower than expected, triggering stop-losses on some short positions in the single currency. Sentiment towards the unit remained fragile however, as concerns over the debt crisis lingered.
Euro zone ministers agreed on Monday to boost IMF resources by 150 billion euros to ward off the debt crisis and won support for more money from EU allies, but it was unclear if the bloc would reach its 200 billion euro target after Britain bowed out.
“The broader market continues to be dissatisfied with policymakers' reluctance for the ECB to become the lender of last resort or boost the euro area stability fund,” said Andrey Kryuchenkov, an analyst at VTB Capital.
European shares, meanwhile, rose after better-than-expected German business sentiment data, while safe-haven German bunds fell.
GOLD SET TO STRUGGLE
Gold prices are set to struggle to make up significant ground for the rest of the month, with traders wary of adding to long positions before year-end, analysts said.
Gains are unlikely unless they can move back above their 200-day moving average, a key technical level breached last week, just above $1,620 an ounce.
“Profit-taking and year-end book squaring by large investors, including mutual funds and macro hedge funds... help explain the recent drop in prices,” said HSBC in a note.
“Gold prices may stay weak but volatile for the rest of this year, we believe, as trading volume is likely to dry up in the run-up to the year-end holidays.”
Last week's price drop has stimulated some demand from Europe and the Middle East, dealers say. Beyond that, analysts say demand from China ahead of the Lunar New Year in late January could help support prices.
Among other precious metals, silver was up 1.8 percent at $29.25 an ounce, tracking gold. Spot platinum was up 1 percent at $1,419.50 an ounce, while spot palladium was up 1.6 percent at $613.71 an ounce.
Swiss trade data released on Tuesday showed Russia exported 5.16 tonnes of palladium to Switzerland in raw, powdered and semi-finished form in November.
Russia is the world's biggest palladium supplier, selling both mined metal and government stockpiles onto the market. Speculation that its official stocks may be close to exhaustion have pushed up prices in recent years.
That statistics also showed South African platinum imports reached their highest monthly level this year in November, at 3.7 tonnes.
“The surge in metal shipments from South Africa could be an early warning sign which suggests that idle metal which is not taken up by industrial users is now being parked in the Swiss clearing system,” said Swiss bank UBS in a note. - Reuters