PRECIOUS: Gold Declines as Dollar Rises Following Moody’s Action on Spain, Reports Reuters

Euro Declines as Moody’s Reviews Spain’s Credit Rating

Gold prices eased in Europe on December 15 as the U.S. dollar strengthened, particularly impacted by Moody’s decision to place Spain’s AA1 credit rating on review for a potential downgrade. This news exerted downward pressure on the euro.

Despite this movement, strong demand for gold as a safe-haven asset has kept prices from declining significantly, according to analysts. At 12:58 GMT, spot gold was priced at $1,393.05 per ounce, lower than the previous day’s closing price of $1,395.61 in New York. U.S. gold futures for February also fell, down $10.50 to $1,393.80.

Credit Agricole analyst Robin Bhar noted, “The downside is well supported by ongoing uncertainties regarding debt, especially with Moody’s reviewing the outlook for some European countries like Spain and Belgium. While this is a short-term negative impacting the euro, it could support gold in the long term, particularly if concerns about fiscal deficits shift towards the United States.”

Moody’s cited Spain’s high funding needs and issues within its banking sector as reasons for the review. The agency also lowered Belgium’s debt outlook to negative recently, further adding pressure on the euro, which dropped 0.2% against the dollar and 0.1% against the Japanese yen, while hitting record lows against the Swiss franc.

This decision by Moody’s heightened worries regarding the debt situations of various euro zone nations, recalling past financial struggles faced by Greece and Ireland, which had previously pushed gold prices to record highs of $1,430.95 an ounce earlier this month.

Economic analysts are increasingly concerned about the U.S. facing a debt crisis analogous to Greece’s if budget deficits, which reached 9.9% of GDP in fiscal 2009, are not addressed. HSBC commented that rising budget deficits negatively affect the U.S. dollar and support gold prices, particularly as confidence wanes in the government’s commitment to reduce deficits.

In India, one of the main consumers of gold, buying activity slowed due to the weak rupee, which kept local gold prices relatively high. Additionally, the SPDR Gold Trust reported a decrease in its holdings by over 3 tonnes on the previous Tuesday.

On a positive note, the iShares Silver Trust announced record holdings of 10,964.14 tonnes as of December 14. UBS expressed a positive outlook for gold and anticipated continued investor demand for silver in 2011, though they noted its volatility might deter some investors, predicting an average price of $33.00 for silver in the coming year.

As for other precious metals, spot silver was at $29.21 per ounce, platinum at $1,696.24, and palladium at $745.58. Additionally, the palladium holdings in the ETFS Physical Palladium exchange-traded product increased by 1.4% to a record 1.119 million ounces, while the ETFS Physical Platinum ETP also reached a record of 412,733 ounces.