LONDON: Gold steadied on Wednesday, after having neared two-month lows the day before in its largest monthly slide since September, prompted by the dollar’s rise against the euro to 11-month highs as the European debt crisis roars on.
Gold has lost about 6 percent in value so far this month, making it its weakest December performance since 2008, when the global credit crunch was at its worst.
The metal’s safe-haven status has been called into question given its inability to profit from the degree of risk aversion and uncertainty among investors.
The lure of the dollar as a comparatively secure alternative to the euro, which has pushed local prices for key consuming regions such as India to record highs and deterred buying, together with an investor dash for cash have proven to be too strong for gold to flaunt its safe-haven qualities.
Spot gold was last quoted unchanged on the day at $1,630.89 an ounce by 1111 GMT, set for a 4.2 percent fall this week, its largest weekly slide in nearly three months.
"At the moment, there has been a clear move towards the dollar; and the dollar, nine times out of 10, has not been gold’s best friend," Nikos Kavalis, a commodities strategist at RBS, said.
"As long as the dollar is gaining, at least until the end of the year, gold will not be in the best position and will remain under pressure," he said, adding: "The market is tending to want to see things from a cautious point of view. We are near the end of the year and no one wants to be particularly heroic."
The Federal Reserve on Tuesday warned that turmoil in Europe presents a big risk to the US economy, leaving the door open to possible further steps to boost growth even though it noted a somewhat stronger labor market.
The central bank said the US economy was "expanding moderately" despite an apparent slowing in the world economy. But while there had been "some" improvement in the job market, unemployment remained elevated and housing depressed, it said.
Cash favored
There has been a clear tendency among investors to hold cash, rather than hard assets and this has accelerated as the end of the year approaches.
The most recent Reuters asset allocation poll showed global portfolio managers held more cash in November than at any time in at least the last seven years, another of the factors undermining gold’s safe-haven properties in the last few weeks.
HSBC said the lack of a commitment to inject more stimulus into the economy by the Fed was a negative factor for gold, along with a push among investors to get more cash onto their balance sheet, but the bank maintained its positive longer-term view for the bullion price.
"Additionally, some macro hedge funds are liquidating gold holdings and taking profits in a difficult year. As trading volume typically drops toward year-end, we expect increasingly volatile price swings," wrote HSBC analyst James Steel in a note.
"Potential gold buyers may be reluctant to come forward as the year draws to a close. Gold could easily slide through the holidays," he said, noting the resilience of holdings of metal in exchange-traded products, which remain near record highs.
Global holdings of gold in the major ETFs tracked by Reuters remain above 70 million ounces, close to this month’s record 70.148 million ounces, as inflows into European funds offset outflows from large US products such as the SPDR Gold Trust, the world’s biggest gold-backed ETF.
The amount of gold held in ETFs may be near record highs and although the gold price is suffering from investors’ desire for the safety of cash, the risk of this $116 billion stash of bullion being jettisoned is distant.
In other precious metals traded, platinum was last down 0.4 percent on the day at $1,463.49 an ounce.
The platinum price is set for its largest monthly decline since September, down by nearly 6 percent so far in December, in spite of potentially price-supportive reports earlier this week of a sharp decline in platinum mine output in top producer South Africa.
The premium of gold over platinum reached historic highs above $200 an ounce, indicating gold’s outperformance. But with the decline in the gold price this week, this gap has narrowed to around $165 an ounce.
"Indeed, future supply growth fails to be incentivized with platinum prices trading below $1500/oz and the PGM basket price trending lower," Suki Cooper, analyst at Barclays Capital, said in a note.
"PGM cost of production continues to rise despite the current respite provided by the weaker rand, which we believe will be temporary given our FX strategists forecast for the rand to strengthen over the next 12 months against the dollar."
Palladium was last down 0.6 percent at $637.50 an ounce, while silver fell 0.85 percent on the day to $30.51 an ounce.
