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Gold falls as global economy stutters

12-29-2011 16:56 BJT

Gold fell yesterday, tracking industrial metals and equities lower, as concerns about global economic growth and Iran's threat to stop the flow of oil kept investors on the sidelines.

Latest data out of the US sent mixed signals on the health of the world's largest economy. Improving labor market conditions lifted consumer confidence to an eight-month high in December, but persistently weak house prices remain an obstacle to faster economic growth.

Spot gold was down 0.5 percent at $1,585.70 an ounce by 0933 GMT, on course for a third consecutive session of losses.

US gold also fell, dropping by 0.6 percent to $1,586.40.

Iran's threat put world shares on the back foot, and industrial metals eased in thin holiday trade.

"Gold is still tightly correlated with equities markets," VTB Capital analyst Andrey Kryuchenkov said.

"But also risk aversion is not at the levels we saw in early August when gold de-coupled from everything else and traded with the dollar," he said.

Although gold traditionally has a safe-haven appeal, the eurozone debt crisis is threatening the global economy, causing a liquidity shortage in markets and forcing investors to abandon their gold positions to cover losses elsewhere.

The dollar was almost flat against a basket of currencies, with the euro hovering around an 11-month low against the US currency.

A stronger dollar often encourages non-US holders of gold to sell the metal to lock in a higher profit in their own currencies.

Italian debt auctions this week are also making investors nervous.

Italian government bond yields edged higher on Tuesday and were expected to rise further with concerns that thin liquidity may complicate Rome's plans to sell 8.5 billion euros ($11.1 billion) worth of debt today.

Asia's physical market was lackluster in the final week of the year, with premiums steady in Singapore and Hong Kong, dealers said.

"There is not too much activity as prices circle around the $1,600 level," said Ronald Leung, a physical dealer at Lee Cheong Gold Dealers in Hong Kong.

But he also added that gold buying from China had been steady.

China should buy gold to further diversify and protect its foreign exchange reserves, said the head of research at the People's Bank of China, the country's central bank.


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Editor:Wang Xi |Source: Global Times

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