PRECIOUS-Gold falls on deflation fears, euro debt worries

Wed Jun 27, 2012 1:02am IST

* Fears over economic slowdown, euro debt crisis weigh
    * Gold pressured after Germany opposes to euro bonds
    * Futures volume light, quiet dealings despite option expiry
    * Traders take to the sidelines ahead of EU summit Thurs/Fri

 (Recasts, adds details, new comment, updates market activity)
    By Frank Tang
    NEW YORK, June 26 (Reuters) - Gold retreated in quiet trade
o n T uesday after the previous session's gains, dragged lower by
fears of deflation amid disappointing U.S. consumer confidence
data and signs of a worsening European debt crisis.
    Also hurting the metal's inflation-hedge appeal was a tepid
Spanish bill auction which sent its borrowing costs soaring, a
day after Cyprus requested for a bailout from the European
Union. A five-month low in U.S. consumer confidence also
weighed. 
    Selling in gold accelerated after German Chancellor Angela
Merkel signalled EU's largest economy and paymaster opposed to
the idea of raising common euro-zone bonds to deal with the
region's fettering debt problems. 
    "Absent very visible actions from central banks, deflation
fears will continue to control the trade," said Frank McGhee,
head precious metals trader of Integrated Brokerage Services
LLC.
    "There is nothing to sustain gold's rallies, so we're
susceptible to these profit-taking bouts which will probably
continue moving forward," McGhee said.
    Gold rose on Monday following last week's 3.5 percent drop
after the U.S. Federal Reserve did not embark on a new outright
bond purchase program. The metal has been a favorite by hedge
funds to protect against economic uncertainty brought forth by
central bank monetary stimulus.
    Spot gold was down 0.7 percent at $1,573.20 an ounce
by 2:30 p.m. (1830 GMT).
    Spot silver fell 1.4 percent to $27.11 an ounce.
    U.S. gold futures for August delivery settled down
$13.50 an ounce at $1,574.90. Trading volume was very thin at
less than 100,000 lots, less than half of its 30-day average,
preliminary Reuters data showed. 
    Dealers said Tuesday's COMEX July option expiry did not
increase volume as current gold prices were sharply below the
$1,600 call strike which has the highest open interest. Some
investors also held their bets ahead of the EU meeting later
this week.    
    Germany's Merkel said Europe would not share total debt
liability "as long as I live", as the bloc's big four finance
ministers met to narrow differences on how to solve a worsening
debt crisis. 
    Edward Meir, metals analyst at financial services firm INTL
FC Stone, said gold could see more downward price pressure if
Germany successfully warded off pleas for more accommodative
policies at the upcoming EU meeting, as investors are likely to
interpret the move against further monetary easing.
    
    INDIAN PHYSICAL DEMAND WEAK
    Demand for physical gold continued to be light in major
consumer India. Physical gold in terms of Indian rupees have
risen more than 5 percent since March as the currency fell to a
record low last week, prompting consumers to postpone their
bullion purchases. 
    However, official sector interest is still underpinning the
market. Russia, Turkey, Kazakhstan and Ukraine all bought gold
last month, data from the International Monetary Fund showed on
Tuesday. 
    Among platinum group metals, spot platinum was down
0.8 percent at $1,425.25 an ounce, while spot palladium 
dropped 2.1 percent at $589.88 an ounce.
    
 2:30 PM EDT     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold AUG   1574.90 -13.50  -0.8  1568.20 1588.40   92,710
 US Silver JUL  27.038 -0.482  -1.8   26.735  27.495   48,886
 US Plat JUL   1426.80 -12.60  -0.9  1425.10 1443.60    7,523
 US Pall SEP    593.70 -13.55  -2.2   591.30  607.50    2,879
                                                              
 Gold          1573.20 -10.88  -0.7  1568.56 1586.70         
 Silver         27.110 -0.390  -1.4   26.830  27.550
 Platinum      1422.55 -12.00  -0.8  1429.10 1440.50
 Palladium      589.88 -12.70  -2.1   594.75  606.00
                                                              
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold         99,325   211,777   197,040     20.36   -0.17
 US Silver       84,558    54,326    54,483     31.57    1.01
 US Platinum     13,612    10,282     8,205        23    0.00
 US Palladium     2,914     5,264     4,463                  
                                                              
 

 (Additional reporting by Jan Harvey in London; Editing by Bob
Burgdorfer and Marguerita Choy)
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