Gold falls 1% as US data lifts dollar against euro

LONDON: Gold slipped 1% in Europe yesterday as the dollar hit session highs versus the euro after data showed business activity in the US mid-west expanded far more than expected in December.

Trading in Europe, the United States and some parts of Asia was thinned by the Christmas and New Year holidays, with many market participants away until Jan 4.

Spot gold hit a low of US$1,085.90 (RM3,725) an ounce and was bid at US$1,088.15 an ounce at 1513 GMT, against US$1,096.55 late in New York on Tuesday.

"Technically, it looks like there is some more space on the downside," said Michael Kempinski, a senior trader at Commerzbank. "It is difficult to say what is going to happen tomorrow because the market is very thin."

"The euro is weakening a bit and the dollar is bouncing back, so that is putting some pressure on gold," he added.

Strength in the US currency cuts gold's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.

The dollar extended gains against the euro to session highs in midafternoon trade after the Chicago Institute for Supply Management said its index of midwest business activity rose in December to its highest since January 2006.

Going into the new year, currency traders are focusing on when the US Federal Reserve is likely to start tightening monetary policy.

A spate of better-than-expected data in recent weeks has lifted expectations a rate rise may come sooner rather than later. If rates are lifted, it is likely to benefit the dollar, and consequently weigh on gold.

The precious metal's decline is taking spot prices further from the record high of US$1,226.10 an ounce they hit at the beginning of December after a wave of central bank gold buying.

"The bear pressure is certainly on the market now and the stronger dollar is curbing any recovery attempts by gold," said Pradeep Unni, senior analyst at Richcomm Global Services.

"The number of long speculators is slowly and steadily fading off and formidable resistances at the US$1,107-US$1,110 zones are repeatedly being used as selling opportunities.

"Despite the low trading activity, a possible slide to US$1,080-US$1,072 seems more likely in the coming sessions."

US gold futures for February delivery on the Comex division of the New York Mercantile Exchange fell US$9.30 to US$1,088.80 an ounce.

Among other commodities, oil prices steadied near US$79 a barrel as a decline in US fuel stocks and optimism over the economic outlook countered the effects of the stronger dollar.

Gold tends to track crude prices, as the metal can be bought as a hedge against oil-led inflation.

Investment demand for gold was firm, with the world's largest bullion-backed exchange-traded fund, New York's SPDR Gold Trust reporting an inflow of just under one tonne on Tuesday.

Among other precious metals, silver was at US$16.80 an ounce against US$17.08, while platinum was at US$1,450 an ounce versus US$1,462. — Reuters