EU concerns support Gold’s “safe haven”

London 17/01/2011 - Gold drifted lower on Monday morning on technical pressure after failing to maintain recent upward momentum, although lingering Eurozone concerns ahead of a key EU summit bolstered safe-haven buying.

Spot gold was last at $1,358.55/1,359.55 per ounce, down $1.34 from the previous session but hovering above the multi-day lows of the previous session.

The metal had fallen to its lowest since January 7 at $1,355.09 per ounce on Friday at the end of a volatile week, failing to maintain gains and swinging 2.7 percent from the previous day’s multi-day peaks around $1,393.

But continued concerns over the state of the Eurozone have kept safe-haven interest in bullion bubbly, limiting falls. On Friday ratings agency Fitch downgraded Greece's debt rating to junk, the latest in a string of recent reductions - Ireland, Portugal and Hungary have all had their ratings reduced over the past month.

Markets are also nervy ahead of a key summit involving ministers from across the Eurozone. Delegates are due to discuss expanding the region's bailout fund to boost market stability and avert the prospect of financial meltdown in Europe.

But despite the talks and successful Portuguese, Spanish and Italian bond auctions last week, fears persist over the euro zone’s ability to avoid sovereign debt contagion, with Portugal reportedly coming under heavy pressure in recent sessions to accept a financial bailout.

"Concerns still remain surrounding Portugal and whether the country will succumb to bailout experienced by Greece and Ireland," broker Fairfax said.

Elsewhere, on Friday the Chinese central bank announced that it would raise its reserve ratio by 50 basis points as of January 20, the seventh such rise since the start of 2009. The spectre of economic overheating and inflationary concern traditionally benefits store-of-value assets such as gold.

"Precious metals markets are increasingly sensitive to rising interest rates, as investment demand is becoming ever more important for the overall supply/demand balance," broker Credit Suisse said.

The euro snapped lower in start-of-week trade and, at 1.3290 against the dollar, was still more than a quarter of a cent lower from the previous session. Continued strength last week culminated in the single currency rising to one-month highs at 1.3454 on Friday.


Precious metals prices could continue to drift in Monday trade, with data thin on the ground - US markets are out for the annual Martin Luther King Jr. Day.

Other precious metals tracked gold lower. Silver dropped to a new low since December 10 at $28.05 per ounce before settling at $28.19/28.24, still 23 cents lower.

Silver has fallen more than five percent since the middle of last week, failing to hold onto gains and becoming susceptible to strong technical downward pressure.

Platinum was last at $1,802/1,807 per ounce, down $8.50 - it had risen to its highest since July 2008 on Thursday at $1,829.

Palladium was last at $783/788 per ounce, $11.50 lower. It had advanced to $822.50 on Thursday, a 10-year peak.