Gold falls with wider markets, fiscal cliff caps losses

LONDON Wed Nov 28, 2012 6:38pm IST

A salesgirl shows a gold necklace to customers at a jewellery showroom in Chandigarh November 11, 2012. REUTERS/Ajay Verma

A salesgirl shows a gold necklace to customers at a jewellery showroom in Chandigarh November 11, 2012.

Credit: Reuters/Ajay Verma

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LONDON (Reuters) - Gold fell in a third day of losses on Wednesday, with the market for the yellow metal behaving as a risk asset, as shares and other commodities slipped on concerns about Greece's new debt agreement.

Lenders agreed to cut Greece's debt on Tuesday, averting an imminent bankruptcy, but some details of the deal are unclear and analysts worry it did not do enough to ensure the debt is sustainable.

Spot gold eased 0.47 percent to $1,733.55 an ounce by 1232 GMT, while U.S. gold shed 0.49 percent to $1,733.90.

Andrey Kryuchenkov, analyst with VTB Capital, said that gold had become a "risk off" asset as speculators took profits as shares and commodities fell.

At the same time, U.S. Senate Majority Leader Harry Reid expressed disappointment on Tuesday over slow progress in finding a compromise to avoid $600 billion in tax increases and spending cuts due to start in January, a combination known as the fiscal cliff.

"The main underlying factor supporting gold is the fiscal cliff. We're heading into a period of uncertainty over how this matter will be solved, and until it is resolved the fiscal cliff will be supportive," Citi analyst Jon Bergtheil said.

Even as the market was buffeted around by wider forces, investors are still clinging to the metal's appeal as an ultimate refuge from uncertainty.

This was demonstrated by holdings of SPDR Gold Trust GLD, the world's largest gold-backed exchange-traded fund, hitting a record high.


Despite investors confidence showing through in ETF holdings, the threat of the U.S. economy slipping off the fiscal cliff is not an absolute clear certainty for gold prices as strength in the dollar -- a more popular safe haven -- could well put a cap on gains.

The U.S. currency and the yen gained ground against the euro on Wednesday as investors took profit on gains made after euro zone policymakers agreed on a new debt target for Greece.

GRAPHIC-2012 asset returns:

GRAPHIC-2012 commod returns:

GRAPHIC-Gold/USD correlation:

GRAPHIC-Gold/silver ratio:

Holdings of SPDR Gold Trust GLD hit a record 1,345.813 tonnes on November 27, while iShares Silver Trust SLV, the world's largest silver ETF, saw its holdings remain near a two-month low of 9,818.07 tonnes.

In contrast to the stagnant holdings in the silver ETF, spot silver rose to $34.26 an ounce on Tuesday, its loftiest level since mid-October, before easing to $33.76.

Silver is notorious for its volatility. The metal burned the fingers of many investors last year during its surge to a historical high and a subsequent tumble that saw prices fall more than a third within 10 trading days.

Spot platinum was down 0.62 percent at $1,598.2 an ounce, while spot palladium was down 1.50 percent at $655.25 an ounce.

(Editing by Veronica Brown and Alison Birrane)

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