May 14, 2012 / 10:26 AM / 5 years ago

PRECIOUS-Gold drops to 4-1/2-month low on euro zone worries

5 Min Read

 (Updates prices, adds comment)	
 * Greece political impasse fuels euro zone crisis concerns
 * Euro near lowest in nearly four months vs dollar
 * Platinum, palladium to rise through 2012-Reuters poll
 By Harpreet Bhal	
 LONDON, May 14 (Reuters) - Gold prices fell to a 4-1/2-month
low on Monday, hit by concerns about a worsening debt crisis in
the euro zone following political deadlock in Greece which
fuelled risk aversion and put pressure on the euro. 	
 Spot gold hit a session low at $1,556.61 an ounce,
its lowest since December 30, 2011, before recovering slightly
to trade at $1,561.10 an ounce at 1323 GMT, down 1.1 percent
from $1,578.30 hit late in New York on Friday. 	
 Gold has moved in tandem with riskier assets this year as
the turmoil in Europe sent the euro to multi-month lows and
investors turned to the safety of the dollar, analysts said. 	
 "Gold is under severe pressure. The U.S. dollar is being
seen as a safe haven at the moment and as long as the dollar is
appreciating against the euro this is clearly weighing on the
gold price," said Daniel Briesemann, analyst at Commerzbank. 	
 "I wouldn't be surprised if we test the December low of
around $1,520 an ounce and if we don't stop here we could go
below $1,500." 	
 Concerns about the euro zone crisis resurfaced after
coalition talks in Greece hit an impasse on Sunday and Greece's
radical leftist leader spurned an invitation from the president
for a final round of talks on Monday, all but ensuring another
election next month.   	
 The euro fell to its lowest in nearly four months against
the dollar, which rose against a basket of currencies. A strong
dollar makes commodities priced in the U.S. unit more expensive
for holders of other currencies. 	
 Also weighing on sentiment for the precious metal, money
managers in gold futures and options cut their net long
positions by 20 percent to the lowest level since December 2008,
as investors aggressively unwound their bullish bets in the
precious metal after a sharp price pullback. 	
 U.S. gold for June slipped 1.5 percent to $1,561 an
ounce. 	
 Reflecting risk aversion in financial markets, European
shares fell to their lowest levels in four months, while safe
haven German bond yields hit record highs.  	
 Investors had turned to gold as a safe haven during the  
debt crisis last year, sending prices to an all-time high of  
around $1,920 an ounce. But this year gold is trading more in
line as a commodity that moves in the opposite direction to  
the U.S. dollar.  	
 "In our view, recent (gold) market activity is consistent
with distressed selling and long liquidation," Morgan Stanley
analysts wrote in a note.	
 "Nevertheless, we think gold prices will recover in the
coming weeks. The fundamental factors that have driven the gold
bull market of late remain very much in place."	
 	
 	
 	
 PLATINUM, PALLADIUM TO RISE  	
 Spot platinum fell 0.9 percent to $1,446.24 an ounce,
while spot palladium edged up 0.3 percent to $598.72 an
ounce. Spot silver fell 1.2 percent to $28.50.	
 Prices of platinum and palladium are expected to end the
year well above current levels, a Reuters poll conducted for
Platinum Week showed, as constraints on supply and improving
demand tighten the market. 	
 Meanwhile, the global palladium market is seen swinging into
a shortfall this year, potentially pushing prices of the
autocatalyst metal to nine-month highs, as top producer Russia
completes sales of its state stockpile, refiner Johnson Matthey
said on Monday. 	
 Market sentiment was also dampened by China's move on
Saturday to loosen monetary policy which underscored how
Europe's plight is hampering global growth. 	
 The People's Bank of China cut the amount of cash that banks
must hold as reserves on Saturday, freeing an estimated 400
billion yuan ($63.5 billion) for lending to add to the roughly
800 billion injected in two previous 50 bps cuts since the
government tilted its policy stance towards growth in October.  	
 In the physical market, jewellery makers and speculators
took advantage of last week's drop in prices.   	
 "We've seen physical buying interest. But people are still
bearish about the market because of the strong dollar and
worries that Greece won't be able to solve its problems," said a
dealer in Hong Kong. 	
 "Investors are not so aggressive, and I think the jeweller
sector is more important. Supply is a bit tight in the physical
market."	
	
 (Additional reporting by Lewa Pardomuan in Singapore; Editing
by Alison Birrane and Helen Massy-Beresford)	
 

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