June 19, 2012 / 10:49 AM / 7 years ago

PRECIOUS-Gold down as Fed meets, euro worries support

* Gold breaks seven-day winning streak
    * Prospect of further U.S. monetary easing in focus
    * Safe-haven bids support on lingering euro debt worries
    * Coming up: U.S. Fed policy statement Wednesday

 (Updates market prices)
    By Frank Tang
    NEW YORK, June 19 (Reuters) - Gold prices fell on Tuesday
for the first time in eight days as buyers stayed on the
sidelines ahead of a U.S. Federal Reserve policy meeting that
could signal new monetary stimulus, a move that would likely
power the metal's recent rally.
    Bullion snapped a seven-day winning streak, which was
underpinned by safe-haven bids on signs of a worsening euro zone
debt crisis. Spain on Tu esday had to pay a euro-era record price
to sell short-term debt, underlying that the region's troubles
run much deeper than Greece. 
    Gold option volatility fell for a second straight day,
suggesting some investors do not anticipate big price moves in
the metal. The drop also tracked a similar decline in the
equities options fear gauge VIX as Wall Street rallied 1
percent on encouraging U.S. housing data. 
    Gold's appeal as a hedge against economic uncertainty could
also rise when the Fed issues a policy statement at the end of
its two-day meeting on Wednesday. Economists said the U.S.
central bank could extend its effort to drive down borrowing
costs instead of committing to a new stimulus program.
    "Gold has shown itself to be very sensitive to shifts in
expectations of U.S. monetary policy. If the Fed states that it
is prepared to ease policy further if the economy should weaken,
this may be sufficient to support gold prices," said James
Steel, chief commodity analyst at HSBC.
    Spot gold was down 0.5 percent at $1,620.31 an ounce
by 3:04 p.m. EDT (1904 GMT). Prior to Tuesday, the metal had
gained around 3 percent during its seven-day winning streak. 
    U.S. gold futures for August delivery settled down
$3.80 an ounce at $1,623.20. Trading volume was weak for a
second straight day at about 40 percent below its 30-day
average, preliminary Reuters data showed.
    Poor U.S. jobs data early this month prompted talk the Fed
could be pushed into a third round of asset purchases to drive
down interest rates, a process known as quantitative easing.
    "Clearly the shift towards easier money is much more
necessary now than it was three months ago. That's good news for
gold," Adrian Day, president of Adrian Day Asset Management,
said.
    Given an economic outlook that is weak but not recessionary,
the U.S. central bank could opt for extending "Operation Twist",
its effort to drive down long-term borrowing costs by selling
short-term securities to buy longer-term ones. 
    
    ETF DEMAND UP AHEAD OF FED
    Interest from longer-term gold investors appeared to be
improving. Bullion held by the world's largest gold
exchange-traded fund, the SPDR Gold Trust, rose by 3
tonnes, or 0.3 percent, to 1,281.6 tonnes, its highest level
since late April.
    The metal had rallied as much as 15 percent after the Fed in
January said it would keep interest rates near zero until at
least late 2014. Gold has since tumbled several times, however,
after Fed Chairman Ben Bernanke mentioned no further easing in
his congressional testimonies.
    Year-to-date, gold is up about 4 percent. The market is
still a long way off the record seen last year at $1,920.30 an
ounce. 
   
    Among other precious metals, silver was down 0.9
percent at $28.45 an ounce, while spot platinum edged
down 0.1 percent at $1,473.80 an ounce. Spot palladium 
inched down 0.2 percent to $625.60 an ounce.
    
 3:04 PM EDT     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold AUG   1623.20  -3.80  -0.2  1618.10 1634.30  114,373
 US Silver JUL  28.368 -0.303  -1.1   28.270  28.900   33,399
 US Plat JUL   1480.50  -3.60  -0.2  1478.00 1492.60    8,101
 US Pall SEP    629.40  -3.75  -0.6   625.40  635.90    2,033
                                                              
 Gold          1620.31  -7.63  -0.5  1618.03 1632.90         
 Silver         28.450 -0.260  -0.9   28.350  28.930
 Platinum      1473.80  -1.50  -0.1  1482.10 1489.25
 Palladium      625.60  -1.48  -0.2   628.35  633.25
                                                              
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        120,826   215,229   197,043     21.78   -0.34
 US Silver       40,470    50,220    53,401     30.07   -3.87
 US Platinum     10,527     9,327     8,105     23.81    0.39
 US Palladium     2,036     5,802     4,502                  
                                                              
 

 (Additional reporting Veronica Brown and Jan Harvey in London;
Editing by Marguerita Choy, Bob Burgdorfer and Dale Hudson)
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