Gold Declines for Second Day as European Debt Concern Sends Dollar Higher

Gold fell for a second day as concern about a potential Greek default drove the dollar higher and some investors sold the metal to cover losses in other markets on speculation the European debt contagion is worsening.

Gold for immediate delivery declined as much as 0.7 percent to $1,842.25 an ounce, and traded at $1,852.85 at 10:54 a.m. in Singapore, erasing an earlier gain of 0.4 percent. It reached a record $1,921.15 an ounce on Sept. 6. Bullion priced in euros and Swiss francs advanced to all-time highs today.

The dollar climbed for a third day against a six-currency basket to its strongest level in more than six months as investors sought safe assets. December-delivery bullion in New York, which sometimes moves inversely to the dollar, shed as much as 0.8 percent to $1,844.60 an ounce before trading at $1,855.50.

“A spike in the U.S. dollar prompted investors to close off bullish bets in bullion,” Phillip Futures analysts including Ong Yi Ling wrote in a note today. “After weeks of extreme volatility, confidence in gold’s bull was tempered.”
Gold’s 30-day historical volatility, a measure of how much the metal fluctuates, climbed above 33 last week. This is the highest level since December 2008 and compares with this year’s low of 8.7 in June.

Exchange-traded product holdings rose for the first time in eight days on Sept. 9 to 2,149.763 metric tons after reaching a record 2,216.756 tons on Aug. 8, Bloomberg data show. Hedge funds and other money managers added to their net-long gold positions by 4 percent to 184,371 contracts in the week to Sept. 6, data from the U.S. Commodity Futures Trading Commission showed. Twenty-two of 26 traders, investors and analysts surveyed by Bloomberg said bullion will rise this week.

Dollar Strength

The Dollar Index, which tracks the greenback against six U.S. trading partners, had its biggest weekly gain since October 2008 last week after President Barack Obama detailed his $447 billion plan to boost jobs in a Sept. 8 address to Congress. The index is still 2 percent lower this year on concern the economic recovery is faltering as unemployment persists.

“The U.S. dollar has been sold off so significantly but I can’t see any reason for it to rally as the U.S. has got significant problems that it needs to address,” said Gavin Wendt, founder and director of Mine Life Pty. “As people look for haven assets, it’s very possible for both the dollar and gold to go up together.”

Officials in Chancellor Angela Merkel’s government are debating how to shore up German banks in the event that Greece fails to meet the budget-cutting terms of its aid package and is unable to get a bailout-loan payment, three coalition officials said Sept. 9.

BNP Paribas SA, Societe Generale SA and Credit Agricole SA, France’s top banks, may have their credit ratings cut by Moody’s Investors Service as soon as this week because of Greek holdings, two people with knowledge of the matter said on Sept. 10.

“Nothing changes from week to week, there’s always a lot of uncertainty and we’re definitely going to see a continued interest in gold,” Wendt said.
Cash silver slid as much as 1.1 percent to $41.0225 an ounce before trading at $41.2625. Spot platinum was little changed at $1,833 an ounce, while palladium fell 0.4 percent to $733.50 an ounce.(Bloomberg)