Gold hits one-week low as euro zone data hurts stocks

LONDON Thu Nov 15, 2012 9:42pm IST

Gold jewellery are pictured on a stand at the Valenza international jewels exposition in Valenza, northern Italy October 29, 2012. REUTERS/Alessandro Garofalo

Gold jewellery are pictured on a stand at the Valenza international jewels exposition in Valenza, northern Italy October 29, 2012.

Credit: Reuters/Alessandro Garofalo

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LONDON (Reuters) - Gold slid more than 1 percent to a one-week low on Thursday following falls in equity markets, but worries about the approaching U.S. 'fiscal cliff' underpinned prices.

World equity markets fell for a seventh day on Thursday, hit by evidence that Europe's debt crisis has stalled economic growth and by persistent concern over the budget problems in the United States.

Losses in stocks helped push spot gold down 0.79 percent to $1,712.4 by 1528 GMT, clawing back some territory after hitting a one-week low of $1,704.69, while U.S. gold for December was down $17.40 an ounce to $1,712.70.

"The fall to session lows in gold is driven by equities. And the end of mining strikes in South Africa is having an impact on platinum group metals, and gold too," Peter Fertig, a consultant with Quantitative Commodity Research, said.

The last of a wave of illegal strikes that have swept South Africa's mining sector ended on Thursday after workers accepted an offer from Anglo American Platinum Ltd (AMSJ.J), the world's top producer of the precious metal.

Platinum eased 1.06 percent to $1,566.25, while sister metal palladium was last at $632.47, down 0.15 percent.

Silver was down 0.67 percent at $32.43 an ounce.

Referring to falling gold and equity markets, Nic Brown, an analyst with Natixis, said, "You get periods of high correlation between risky assets, and this seems to be happening now.

"There are times when gold is just another commodity."

Brown added, however, that concerns over the approaching U.S. "fiscal cliff" - a combination of government spending cuts and tax rises that become effective in early 2013 if Congress cannot reach an agreement - may lift gold's appeal as a safe haven if negotiations over how to tackle it are protracted.

"If ... agreement looks less likely, I see risks to the upside in the gold price," he said.

President Obama said on Wednesday that Republicans would have to agree to raise taxes on the wealthy as the first step in a budget deal that would prevent a dysfunctional Washington from pushing the economy into recession.

Among other commodities, Brent crude rose towards $111 a barrel on Thursday as Israel's bombing of the Gaza Strip sparked worries around the supply of oil from the Middle East.

Political tensions traditionally also lift gold, though their impact has been outweighed in recent years by economic concerns. If the situation deteriorates, it could affect gold.

"An all-out war would trigger high oil prices, leading to higher inflation and subsequently a return to recession," which would support gold, Saxo Bank Vice President Ole Hansen said.

"In the short term, it could trigger a massive risk-off which ... would hurt gold as the dollar would rally."

GOLD DEMAND FELL IN Q3

A report from the World Gold Council showed on Thursday that global gold demand dropped 11 percent in the three months to September from record levels in the same period last year, hurt by lower demand in China as its economy slowed but with stronger Indian buying stemming a larger fall.

Gold prices in India, historically the world's biggest buyer of bullion, nudged down in line with spot prices on Thursday as the rupee firmed against the dollar, but dealers expected local prices to remain firm given the wedding season.

Global jewellery consumption dipped 2 percent to 448.8 tonnes, the WGC report showed, while demand for coins and bars fell 30 percent. European investors, particularly in German-speaking markets, accounted for half of the 128.1 tonne drop in bar and coin demand.

The WGC's managing director for investment, Marcus Grubb, told the Reuters Global Gold Forum that he expected full-year buying to be lower than in 2011 though prices would hold firm.

"Last year demand was around 4,400 tonnes ... but so far this year we are lower, mainly because of the bad first half in India," he said.

"We expect ... we will see demand in tonnes down by 5 to 10 percent from 2011, but the price will stay at or above where we are now with quantitative easing, (the) U.S. cliff and debt ceiling, and the OMT (bond purchase plan) in the euro zone, plus strong seasonal demand in India and China."

(Editing by William Hardy and Jane Baird)

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