Gold drops as dollar rises amid risk aversion

By Frank Tang and Jan Harvey

NEW YORK/LONDON (BestGrowthStock) – Gold fell on Tuesday as a resurgent dollar amid lower risk appetite and sovereign debt worries dented investment interest in the metal.

The euro dropped against the dollar, still struggling in the face of debt concerns in peripheral euro zone countries such as Greece and Portugal.

“With the euro below $1.37, gold will be struggling, because it is not going to get the support from the currencies,” said Saxo Bank senior manager Ole Hansen.

“The upside on the euro seems to be capped by now, and if that is the case, gold will be as well.”

Spot gold was at $1,119.95 an ounce at 3:14 p.m. EST (2014 GMT), against $1,122.85 late in New York on Monday.

U.S. gold futures for April delivery on the COMEX division of the NYMEX settled down $1.70 at $1,122.30 an ounce.

The metal recovered from session lows of $1,108.20 an ounce. However, as the U.S. currency pared gains, oil prices recovered some of their earlier losses and metal found strong buying interest at lower levels, dealers said.

Fitch Ratings said on Tuesday it still has a negative outlook on Portugal’s double-A ratings and was studying the details of the country’s new austerity measures.

Oil prices also slipped back from eight-week highs on Tuesday, falling nearly 2 percent at their session lows, on expectations of a rise in U.S. crude inventories and on the stronger dollar. They later pared losses.

Gold tends to track crude prices, as the metal can be bought as a hedge against oil-led inflation.

CHINA OPTS FOR PRUDENCE

China’s top foreign exchange manager, head of the State Administration of Foreign Exchange Yi Gang, said on Tuesday Beijing will be prudent in adding gold to its official reserves, wary that such a move would drive prices higher.

Speculation has been rife in the last year that China would add to its gold reserves, given that its current holdings make up only a small proportion of its foreign exchange reserves.

UBS analyst Edel Tully said in a note that given the price-negative undertones of Yi’s comments, the gold market’s reaction to the news had been muted.

“While we would expect more near-term downside for gold once the news sinks in, it is unlikely to entirely quash market expectations that China will indeed move to increase its reserve capacity for gold,” she said.

Palladium fell most among the precious metals on Tuesday, slipping as much as 3 percent as traders cashed in gains after its rise to two-year highs at $480 an ounce late last week.

The world’s biggest palladium producer, Norilsk Nickel (GKMN.MM: ), told the Reuters Global Mining and Steel Summit that the metal is an appealing investment because future jewelry and industrial demand will be strong.

Palladium, primarily used in autocatalysts, has benefited from well-received February car sales numbers from China and the United States — both primarily petrol-engine markets, which use a higher loading of palladium than platinum.

Palladium was last at $464.50 against $470, while platinum was at $1,586 an ounce versus $1,595.50. Among other precious metals, silver was at $17.24 an ounce against $17.21.

Close Change Pct 2009 YTD

Chg Close % Chg US gold 1122.30 -1.7 -0.2 1096.20 2.4 US silver 17.338 0.066 0.4 16.845 2.9 US platinum 1596.90 -3.20 -0.2 1471.00 8.6 US palladium 469.30 -2.05 -0.4 408.85 14.8

Prices at 3:40 p.m. EST (2040 GMT) Gold 1119.40 -3.45 -0.3 1096.35 2.1 Silver 17.24 0.03 0.2 16.84 2.4 Platinum 1586.00 -9.50 -0.6 1465.50 8.2 Palladium 464.50 -5.500 -1.2 405.50 14.5

Gold Fix 1115.75 -4.25 -0.4 1104 1.1 Silver Fix 17.05 -28.00 -1.6 16.99 0.4 Platinum Fix 1574.00 10.00 0.6 1466 7.4 Palladium Fix 459.00 3.00 0.6 402 14.2

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(Reporting by Frank Tang and Jan Harvey; Editing by Lisa Shumaker)

Gold drops as dollar rises amid risk aversion