LONDON: Gold fell by more than 1 percent on Monday, following its best weekly performance in a month, after Japan’s intervention in the currency market triggered a spike in the dollar, which was already benefiting from ongoing concern about the euro zone.
Japan intervened unilaterally in the foreign exchange market on Monday to curb the yen’s strength, sending the dollar up more than 1 percent against a basket of currencies.
A stronger US currency makes dollar-denominated commodities more expensive for non-US buyers, pushing down the price of silver, copper and crude oil.
This week is set to be dominated by major US data, including monthly employment and several measures of manufacturing, along with Chinese factory activity, which also kept investors cautious.
Spot gold was down by 1.2 percent at $1,719.09 an ounce at 1307 GMT, having risen 6.0 percent last week and set for a 5.8 percent rise this month, following the near-11 percent slide seen in September, when prices hit a record $1,920.30.
"I didn’t buy the story last week of gold trading like a safe-haven again. But gold often trades in line with the other commodities .with(quantitative easing) and inflation and those kinds of things obviously supporting the price of both," said Mitsubishi analyst Matthew Turner.
"This week, it’s all about the economic data and central bank policy meetings. There’s no real sense of direction, except for the fact that it is trading more like a risk asset."
The US Federal Reserve and the European Central Bank meet this week to discuss monetary policy.
The correlation between gold and the European equity market rose to a multi-month high of nearly 50 percent, meaning gold was more likely to move in tandem with stocks, while gold’s negative correlation to the dollar strengthened to -40 percent on Monday from around -30 percent last week.
"The huge spike in the dollar is pressuring gold prices," said Ong Yi Ling, an analyst at Phillip Futures. "But so long as gold stays above $1,700, the sentiment should remain pretty bullish."
Buyers cautious
Buyers in the physical market were on the sidelines, which led to gold bar premiums easing to a range between $1 to $1.50 an ounce over spot prices, from about $1.50 last week.
"We saw some light buying from Thailand," said a Singapore-based dealer. "If prices drop below $1,700, physical buyers are expected to return."
Investment interest in gold has been rekindled in recent weeks after euro zone leaders progressed towards an agreement to solve the bloc’s debt crisis, albeit painstakingly, sending prices up 6 percent last week.
Last week, money managers raised their bullish bets in gold futures and options to the highest in four weeks, data from the US Commodity Futures Trading Commission showed.
SPDR Gold Trust , the world’s largest gold-backed exchange-traded fund, registered an inflow of 16.04 tons last week and of 11.62 tons since the end of September, after a small outflow of 0.38 tons in September.
In the days ahead, investors will be watching a policy meeting of the US Federal Reserve, as well as a key Group of 20 meeting for coordinated efforts or pledges to help stabilize world financial markets.
In other precious metals, platinum and palladium were both down by some 2.0 percent on the day. Key this week for both metals will be gauges of global factory activity, with US monthly vehicle sales offering insight into the health of a key source of demand for platinum group metals.
UBS strategist Edel Tully said the bank’s auto analysts expected monthly US vehicles to pick up thanks to credit availability, improving inventories as well as other purchase incentives.
"Our conversations with producers and end-users in recent weeks have revealed end-user supply contracts remain unchanged, with metal shipments still being comfortably absorbed. The price decline in late September has in fact encouraged forward-buying, as a still rosy medium-term outlook made levels around $1500 a good entry point," she said in a note.
Platinum was last down 2.1 percent at $1,609.49, while palladium was down 2.1 percent at $650.97 and silver fell 2.7 percent to $34.29 an ounce. –Additional reporting by Rujun Shen in Singapore
