PRECIOUS – Gold Prices Decline as Euro Zone Debt Concerns Diminish, According to Reuters

Receding Euro Zone Debt Concerns Weigh on Gold Prices

• Palladium Approaches 10-Year Highs
• Upcoming: U.S. Weekly Jobless Claims

By Amanda Cooper

LONDON, Jan 13 – Gold prices dropped on Thursday, retreating from the previous session’s one-week highs. The decline was attributed to successful bond auctions in the euro zone, which reduced safe-haven demand for gold, although consumer demand remained relatively strong.

Palladium reached levels above $800 an ounce, climbing by 8 percent this week due to expectations of faster global economic growth, steady investment demand, and optimism from the Detroit auto show.

Bond sales from economically vulnerable euro zone countries like Portugal and Spain have seen improved investor demand, alleviating concerns about potential needs for international rescue funds. This easing sentiment contributed to a pullback in gold prices.

Spot gold fell for the first time in four days to $1,379.00 an ounce, marking a 0.6 percent decrease by 1212 GMT. U.S. gold futures for February delivery also trended downwards by 0.4 percent, priced at $1,379.60.

"Risk aversion is diminishing, leading to a decrease in gold prices as the demand for safe havens is currently low," noted Commerzbank analyst Daniel Briesemann. He added that this situation may be temporary, particularly considering the significant refinancing costs still concerning Portugal.

Euro Movement

The euro reached a one-month high against the Swiss franc and showed gains against the dollar amid speculation about upcoming measures to mitigate the euro zone debt crisis. Support for the euro was bolstered by comments from German Finance Minister Wolfgang Schaeuble, indicating that euro zone countries are working on a comprehensive package aimed at resolving the debt issues, expected to be in place by February or March.

Reflecting a drop in investment demand for gold, holdings in the world’s largest gold exchange-traded fund remained around their lowest since June, while another gold fund based in London saw redemptions.

"The recent rise in gold prices seems to be fading as concerns over sovereign debt take a backseat. Many investors in gold are already heavily positioned, leading traders to question where the next wave of buying will come from," stated Manoj Ladwa, a senior trader at ETX Capital.

In physical gold markets, demand from major consumers like India and China was noted, which might provide support for gold prices. Premiums for gold bars reached two-year highs in Singapore and Hong Kong. An individual dealer in Singapore mentioned that local demand was rising due to talks of an increase in gold import taxes in India, leading to proactive purchases of coins and bars. Additionally, demand from China is steady ahead of the Lunar New Year, with strong buying interest from Turkey.

Despite a nearly 1 percent rise this week, gold remains about 3.5 percent lower than its record price of $1,430.95 reached in December.

Both platinum and palladium have garnered renewed interest from investors, with holdings in larger ETFs remaining near record highs. Optimism regarding the auto market’s outlook has also contributed to the recovery of these metals. Palladium is currently trading at its highest level since March 2001, above $800 an ounce.

French car manufacturer PSA Peugeot Citroen expects growth in markets outside of Europe, notably in China and Latin America, after experiencing a substantial increase in global vehicle sales in 2010.

Palladium, primarily utilized in gasoline-powered vehicles in North America and emerging markets, nearly doubled in price the previous year due to expected growth in car markets across countries like China, Brazil, and India. The latest spot price for palladium was reported flat at $807.47 an ounce, having reached a 10-year high of $814.00 overnight. Meanwhile, platinum prices eased by 0.4 percent to $1,791.50, still holding near early November highs. Silver prices dropped by 1.2 percent to $29.29 an ounce, reflecting the overall softness in gold prices, with the gold/silver ratio rising to 47.3 from the previous day’s 46.7.