Gold climbs as risk aversion persists

By Jan Harvey

LONDON (BestGrowthStock) – Gold rose 0.85 percent in Europe on Monday, recovering some of last week’s losses, as lower prices tempted buyers back to the market amid lingering concerns over the fiscal health of the euro zone.

Stock markets slipped and the euro extended losses after the Spanish central bank’s takeover of a savings bank underlined structural problems facing fiscally fragile euro zone states.

Spot gold was bid at $1,185.15 an ounce at 1019 GMT (6:19 a.m. ET), against $1,175.15 late in New York on Friday. U.S. gold futures for June delivery on the COMEX division of the New York Mercantile Exchange rose $9.40 to $1,185.50 an ounce.

“The nervousness of currency markets is clearly visible in the gold market,” said Pradeep Unni, senior analyst at Richcomm Global Services in Dubai. “The extreme fear of potential unannounced ECB intervention or a fresh development in the euro bloc is keeping investors on the edge.”

The euro fell (Read more about the trembling euro. ) 1.5 percent against the dollar as an early rally in the single currency ran out of steam, as investors continued to cut risk in their portfolios after news the Bank of Spain was taking control of savings bank CajaSur.

A stronger dollar usually weighs on gold, but the traditional strong inverse link between the two assets has weakened as both are benefitting from risk aversion. In the longer term, this link may well be re-established, Unni said.

“Now more than ever, arguments of the dollar and gold decoupling from (their) inverse correlation are emerging and this is because investors are hedging recent euro zone and UK crises equally in gold and US dollar,” he said.

“The key point is that gold never actually decouples from the U.S. currency on a longer time duration.”

Holdings of the world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, are still at record levels despite last week’s price correction, fuelling expectations investors are buying the metal as a long-term haven from risk.

ETF HOLDINGS NEAR RECORD

While investment demand for gold as a safe store of value has been strong so far this year, with ETF holdings near record levels, high prices have hurt jewelry demand.

Italian precious metal jewelry imports are thought to have declined 5 percent year on year in volume terms in the first two months of 2010, though they have risen 9 percent in the same period in value, the president of the Fiera di Vicenza jewelry trade show said on Saturday.

Euro-priced gold also rose 2.4 percent on Monday after tumbling 6 percent last week, despite hitting a record high at $1,012.81 euros an ounce on May 17.

Other precious metals also recovered after last week’s hefty falls. Palladium, which tumbled as much as 25 percent last week from the previous Friday’s close to its lowest level since early February, climbed 4.5 percent in early trade.

Palladium was at $442.23 versus $433.50, off a high of $453, and platinum at $1,524.50 versus $1,504.50.

UBS analyst Edel Tully said in a note that a report released by the U.S. Commodity Futures Trading Commission showed a sharp drop in interest in palladium in New York last week.

“Palladium was the heavy loser in the pack, with the Nymex book falling 8.7 percent or 160,000 ounces. This represented the biggest one week percentage decline since the week of Sept 29 last year,” she said.

Silver was bid at $17.82 an ounce against $17.59.

Stock Market Research

(Reporting by Jan Harvey; Editing by Amanda Cooper)

Gold climbs as risk aversion persists