Tuesday, November 29, 2011

Gold steady as euro, stocks recover


By Amanda Cooper


(Reuters) - Gold steadied on Tuesday after posting its second-largest one-day gain of the month the previous day, boosted by a stronger euro and a recovery in risk assets such as stocks, with which gold is trading more closely than at any time in the last year.

The euro briefly traded at session highs against the dollar after Italy sold three- and 10-year debt ahead of a key meeting of euro zone finance ministers, which investors hope could result in fine-tuning the details for leveraging the European Financial Stability Facility rescue fund.

European equities .STOXX turned positive, which helped boost gold.

The correlation between the gold price and the European stock market is at its most positive in a year, while the correlation of gold and copper is hovering around its highest since the final quarter of 2010 as well, meaning gold is more likely to move in lockstep with these assets.

Spot gold was last quoted up 0.16 percent at $1,714.60 an ounce by 1208 GMT, having risen from an intraday low of $1,703.25. On Monday, gold gained nearly 2 percent, marking the second-largest one-day gain in the price so far this month.

"In the short term, we fear gold could go a bit lower actually, but this would be exclusively driven by weaker equity markets and weaker commodity markets, because of the increasing risk aversion," Commerzbank analyst Daniel Briesemann said.

"If you have a look further out for the next six, or even 12 months, we think gold is very well supported around its current levels and even more buyers should find gold attractive at these levels," he added.

Even though gold has all but ditched its safe-haven label in the last month and behaved like a risk-related asset, investors are snapping up the metal.

Gold holdings in exchange-traded funds hit a new record high last week, rising by more than 2.2 million ounces in just one month to 69.993 million ounces, almost equivalent to total mine supply this year, highlighting investor demand for an alternative to currencies, stocks or bonds.

So far this year, investor demand for gold has raised ETF holdings globally by nearly 5.0 million ounces.

"We remain bullish on gold, because we think the solutions are going to need more aggressive monetary policy, which will be positive for gold," said Jeremy Friesen, a commodities strategist at Societe Generale in Hong Kong.

But gold is unlikely to set new highs as trading activity slows ahead of the year-end, with traders booking profits and moving to the sidelines before the holidays.

"I wouldn't be surprised that we don't see much strength toward the end of the year, but into 2012 we should see aggressive monetary policy being reflected in prices of gold," Friesen added.

Euro zone leaders face increasing pressure from other countries and rating agencies to solve the two-year-old debt crisis, which threatens to split up the single-currency bloc and sink the global economy, causing distress in financial markets.

Since hitting a record $1,920.30 an ounce in September, gold has fallen by 10.7 percent, under pressure from the weakness in the euro against the dollar and the growing desire among investors to preserve their wealth with cash rather than hard assets.

So far in 2011, the gold price has risen by more than 20 percent, set for its eleventh consecutive yearly price gain.

In other precious metals, silver was down 0.5 percent on the day at $31.94 an ounce.

Platinum was last up almost flat at $1,545.50 an ounce, while palladium was up more than 2 percent on the day at $590 an ounce.

(Additional reporting by Rujun Shen in Singapore; Editing by Anthony Barker)

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