Gold drops as weak euro; IMF sells 5.6 T of gold

By Frank Tang and Jan Harvey

NEW YORK/LONDON (BestGrowthStock) – Gold prices dropped on Monday as the euro fell (Read more about the trembling euro. ) on uncertainties about an aid deal for debt-stricken Greece, but news of limited gold sales by the International Monetary Fund provided underlying support.

The IMF sold 5.6 tons of gold in February under the second phase of its gold sales program, the World Gold Council said on Monday.

Traders said that the news confirmed a market view that official-sector gold sales would be limited due to renewed interest among central banks in the wake of currency volatility and better price performance of the metal.

“It shows that the lack of central-bank selling is bullish,” said James Steel, chief commodity analyst at HSBC.

Steel said that the market was expecting official gold sales to be minimal as the IMF’s sales are taking place under the umbrella of the third Central Bank Gold Agreement, which began in September 2009.

The IMF began its planned sales of 403.3 tons of gold last year. After the sales reported by the WGC, plus those of 200 tons to India and smaller amounts to Sri Lanka and Mauritius last year, it has a further 185.7 tons of gold to sell.

Spot gold hit a high of $1,159.73 an ounce in earlier trade, its highest since April 15, and was at $1,152.75 an ounce at 2:12 p.m. EDT versus $1,155.90 late in New York on Friday.

U.S. gold futures for June delivery on the COMEX division of the NYMEX settled up 30 cents at $1,154 an ounce.

The combination of risk-averse buying and euro weakness took euro-priced gold to a record 868.57 euros an ounce.

Gold was pressured by a weaker euro as confusion about the timing and amount of emergency aid for Greece prompted investors to sell the single currency.

While euro weakness would usually weigh heavily on gold, other factors such as worries about long-term viability of paper currencies are supporting bullion, analysts said.

“If you look at the past few months and how gold often traded, it held up very well in an environment of a declining euro and a strengthening dollar,” said Michael Widmer, an analyst at Bank of America-Merrill Lynch.

Concerns over the outlook for smaller euro zone economies like Greece have pressured euro 7 percent lower versus the dollar this year, but gold is up 5 percent in the same period as sovereign risk fears have lifted interest in bullion as a haven.

FED EYED

Markets are now awaiting the outcome of a two-day meeting of the U.S. Federal Reserve starting on Tuesday. The Fed is expected to keep interest rates unchanged near zero and repeat its pledge to keep them low for an extended period.

Figures from the U.S. Commodity Futures Trading Commission showed net long positions in New York gold futures fell slightly last week, but analysts say the drop was slight given the strength of the rise in positioning earlier this month.

“While the metal has taken a step back from nearing the all time positioning high, there is just 4.4 million ounces of a gap to the October 2009 record,” said UBS analyst Edel Tully in a note.

“Considering how fast and furious buyers rushed into the market in the first half of April and alongside the volatile price action in the week to April 20, it is somewhat comforting that the net long exodus was contained at 0.8 million ounces.”

Silver was at $18.30 an ounce against $18.27, platinum at $1,739 an ounce against $1,740, and palladium at $562 against $562.50.

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(Reporting by Frank Tang and Jan Harvey)

Gold drops as weak euro; IMF sells 5.6 T of gold