Gold recovers as flight to safety balances dollar
By Daniel at 6 October, 2008, 7:48 am
By Jan Harvey
LONDON, Oct 6 (Reuters) - Gold recovered on Monday from losses made in Asia overnight, as worries over the outlook for the financial sector after a sharp slide in equity markets boosted interest in gold as a haven from risk.
But gains were limited as the dollar held near a 13-month high against the euro, denting the precious metal’s appeal as a currency hedge, and oil prices slipped more than $4 a barrel.
Spot gold was quoted at $839.20/841.20 an ounce at 1000 GMT, up from $834.80 in late New York trade on Friday. Earlier it slipped nearly 1 percent as the dollar firmed.
“The initial sell-off was mainly because of the dollar,” said Afshin Nabavi, head of trading at MKS Finance, adding that both the dollar and the financial markets will drive the gold market today.
European shares fell sharply in early trade after heavy losses on Wall Street on Friday. By mid-morning, the UK FTSE 100 < .FTSE> was down 5.8 percent, Germany’s DAX < .GDAXI> off 5.7 percent and France’s CAC 40 < .FCHI> down 6 percent. [ID:nL6317369]
Losses on the equity markets typically spur buying of alternative assets, such as bullion.
But gold’s gains were limited by dollar strength. The U.S. currency extended gains against the euro, hitting a 13-month high, as investors worried about the outlook for European banks after leaders decided against a common bank bailout plan over the weekend. [ID:nTKW003044]
The other main external driver of gold, oil, also weighed on bullion prices. U.S. crude futures slipped more than $4 to below $90 a barrel as traders worried efforts to avert further financial turmoil would not stem falling demand. [ID:nSP376373]
Gold usually moves in tandem with crude, as it is often bought as a hedge against oil-led inflation.
“(People want to) own gold as a safe haven investment, but the oil price is as low as last February,” said Michael Blumenroth, a trader at Deutsche Bank.
FIRM DEMAND
Prices are being supported by strong investment demand for gold coins and bars, traders say, as well as interest in bullion-backed exchange traded funds. The two main gold and silver ETFs remain near record levels, despite recent outflows.
http://money.ninemsn.com.au/article.aspx?id=642350
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