January 27, 2009 / 3:44 AM / 12 years ago

Gold slips below $900/oz, risk aversion eases

LONDON (Reuters) - Gold held below $900 an ounce on Tuesday, giving up some of the previous sessions’ gains, as easing risk aversion dampened interest in the precious metal.

An employee uses a hammer to store pre-cast bars of gold in a box at a plant of bar manufacturer Argor-Heraeus SA in the southern Swiss town of Mendrisio, November 13, 2008. REUTERS/Arnd Wiegmann/Files

Spot gold was quoted at $898.65/900.25 an ounce at 9:03 a.m. EST, against $902.65 in New York late on Monday. Earlier it slipped to a low of $891.60 an ounce.

U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange fell $10.30 an ounce to $898.50.

“One of the things that has really helped gold a lot has been the issues in the banking system,” Michael Widmer, an analyst at BNP Paribas, said.

“Looking at the newsflow over the last few days, there was a bit of relief after Barclays’ announcement (on its performance),” he said. “That took away some of the immediate buying (of gold).”

On the currency markets, typically a key driver of gold, the euro ceded early gains after hitting a one-week high versus the dollar. However, this failed to pressure gold as it lifted from lows.

Gold typically moves in the opposite direction to the dollar, but its usual relationship with the currency has weakened, with both assets slipping earlier on Tuesday as risk aversion eased.

“A stronger dollar implies panic about the economic outlook but should mean a weaker gold price, in theory,” Daniel Smith, an analyst at Standard Chartered, said.

“The fact that that (relationship) has broken down highlights how worried people are about where they can put their money and who they can trust.”

A Reuters survey of 52 analysts published on Monday showed most expect gold to hold its ground in 2009 despite expected falls in other asset prices, on worries over the global economic outlook and turmoil in the financial markets.

Investment in physically backed products such as exchange-traded funds has been strong in recent weeks as investors seek a safe store of value.

Holdings of New York’s SPDR Gold Trust inched up to a new record for the sixth consecutive session on Monday, and have climbed more than 52 tons since the beginning of the year.

London-based ETF Securities said its gold-backed ETFs saw inflows of 420,000 ounces last week.

SENSITIVE

However, gold jewelry demand remains weak, dealers say.

“As the demand for jewelry is very sensitive to price movements, demand for gold from India, Turkey and the Middle East, the main centers of the gold jewelry industry, should continue to weaken,” said Commerzbank.

Silver softened in line with gold to $11.98/12.06 an ounce from $12.04 an ounce late on Monday.

The Reuters survey showed most analysts expected silver prices to fare better than those of platinum and palladium, as risk aversion boosts its appeal as a safe haven.

The platinum group metals are also under pressure from gold’s fall. Both platinum and palladium suffered in recent months from fears over falling demand from carmakers, who account for around half of global consumption.

“Demand weakness is likely to weigh on the market in (the first half) and prices are likely to gain traction in line with a pick up in the economic growth toward the end of the year,” Barclays Capital said in a note.

South Africa-focused Aquarius Platinum AQP.L said it expects to report a first-half after-tax loss of $75-$85 million due to weak metals prices. Attributable production of PGMs rose 2.7 percent in December, it added.

Platinum edged down to $944.50/954.50 an ounce from $959.59, while palladium eased to $189/194 an ounce from $190.

Editing by Sue Thomas

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