Gold drops 2 percent but financial fears buoy sentiment

Mon Feb 2, 2009

Gold dropped more than 2 percent on Monday, holding just above $900 an ounce as short-term investors took profits on signs of weak jewelry demand and selling related to technical resistance.

Analysts, however, say prices will be underpinned by investors looking for a safe place to park their assets, away from the turbulence in equity markets.

"Gold is currently working as a 'fear indicator', signaling risk aversion of market participants," said Eugen Weinberg, commodities analyst at Commerzbank.

"Strong investment demand should help gold prices to stay around $900 in coming days ... Over the last few weeks the gold price has increased despite a significantly stronger dollar and news about a massive fall in Indian gold imports."

Spot gold traded $904.10 an ounce at 2:17 p.m. EST, down 2.4 percent from the last trade $927.00 on Friday in New York.

U.S. gold futures for April delivery settled down $21.20, or 2.3 percent, at $907.20 an ounce on the COMEX division of the New York Mercantile Exchange.

Traders said profit taking after gold's recent run higher was behind lower prices on Monday.

India's gold imports plunged more than 90 percent to just 1.2 tonnes in January from 18 tonnes in the same month last year.

India is the world's largest gold consumer and its jewelry sector accounts for almost 70 percent of global bullion demand.

A stronger U.S. currency would normally weigh on gold as it makes the precious metal, priced in dollars, more expensive for holders of other currencies.

SCALE OF INTEREST

But over the last few days both the dollar and gold have moved in the same direction. Data showing falling consumer spending and income in the United States did little to dampen investor interest in the dollar.

"People are looking at the longer-term prospect. Everything is in trouble now, and who knows what's going to happen to the dollar in the longer run. So, gold is perceived to be safer," said one precious metals broker in New York.

The scale of investor interest can be seen in the world's largest gold-backed exchange-traded fund (ETF), the SPDR Gold Trust, which as of January 29 held a record 843.59 tonnes of gold, up 10.71 tonnes from January 27.

Whether gold can reach its record high of $1,030.80 an ounce, hit last March, is still under debate and opinions, as seen in a recent Reuters survey, are varied.

The survey of more than 50 precious metals analysts showed a range of between $650 and $1,150 an ounce for this year.

For platinum, the range for this year is $750 to $1200. The metal, used in autocatalysts to help clean car emissions, is down nearly 60 percent since a record high of $2,290 an ounce March.

Recession and slumping car sales around the world and expectations of worse to come for the auto sector will keep prices low, analysts say.

Spot platinum traded at $968.50 an ounce, down 1.7 percent from its last finish of $985.

Silver was at $12.38 an ounce, down 2 percent from its previous close of $12.63, and palladium was at $195.00 an ounce, up 2.1 percent from its previous close $191 on Friday.

http://uk.reuters.com/article/hotStocksNewsUS/idUKTRE5115EL20090202