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Gold drops nearly 3 pct as dollar rises against euro   2008-12-20 - TN, Reuters

 
 
   
Gold dropped more than 2 percent in thin volumes Friday as the euro lost ground against the dollar and bullion's recent rally slowed the pace of physical purchases, traders and analysts said.

 

Spot gold fell to US$833.70 an ounce by 11:16 GMT, against $852.15 an ounce late in New York on Thursday. It had traded as high as $853.10.

"The euro took a bit of a hit this morning," said Tom Kendall, precious metals strategist at Mitsubishi. "I think that is going to be the feature of the day.”

The euro fell broadly as traders locked in profits from the currency's rally to a two-and-ahalf-month high against the dollar and its strongest level ever against the British pound.

Bullion rallied to a two-month high of $881.20 this week.

It tends to move in the opposite direction to the dollar as a strong US currency makes gold more expensive for local currency holders.

"We are going to be bouncing around the range but the tendency is towards the downside for gold," Kendall said, adding oil's falls this week were also putting pressure on bullion.

Crude oil, which fell to its lowest levels since 2004 on Thursday, is now more than $110 off its July peak, having shed a third of its value this month.

US light crude for January delivery was 51 cents lower at $35.71 a barrel at 11:06 GMT ahead of the contract's expiry later on Friday. Crude for February delivery was slightly firmer at $42.15.

Despite gold's impressive 20 percent rally in December alone, some thought the outlook remains bearish.

"The economic outlook is as bad as it has been at any time in the past 100 years. Gold cannot be immune to this," said Fortis Metals in a research note. "It will be hit by a decline in jewelry demand, at least of the adornment variety."

Local jewelers in Dubai's traditional gold markets said this week that sales had collapsed as much as 80 percent in the last couple of weeks.

"Volatility is more of a deterrent than the absolute price level to people particularly in the jewelry business," Kendall at Mitsubishi said.

Technicals offered little support, others added.

"Gold was in an overbought zone and warranted a correction," said precious metals analyst Pradeep Unni at Richcomm Global Services in Dubai.

"Technically, gold is still very weak and hence a swift sell off to $820 and lower cannot be ruled out, as most momentum indicators are hovering in the uncomfortable overbought zones and have started to turn back," he said.

Vietnamese gold prices followed a similar pattern, slumping by VND450,000 to VND17.25 million ($1,026) a tael, or $856 an ounce, at Saigon Jewelry Joint Stock Co., the country’s largest gold trader.

At the Sacombank Jewelry Co. gold exchange, it dropped by VND200,000 to finish at VND17.2 million. A tael equals 37.5 grams.

Trading volume continued to fall, with just 10,080 taels changing hands.

“The fall in international gold prices sank domestic prices,” the HCMC-based gold trader’s Precious Metal & Gemstone Trading Department said, predicting international prices to slip to $800.



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