Gold recovers after sell-off, but vulnerable

LONDON - Gold recovered on Friday from two-week lows, but investors remained cautious as a wave of risk aversion continued to affect financial markets.

By (Reuters)

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Published: Fri 27 Jul 2007, 6:53 PM

Last updated: Sat 4 Apr 2015, 10:23 PM

Gold rose as high as $667 an ounce before falling to $662.60/663.20 by 1005 GMT, still higher than $660.90/661.70 in New York on Thursday, when prices dropped as low as $660.35.

“Probably there is some more downside risk, I suspect, simply because I don’t think that the intensification of risk aversion that we have seen in the last 48 hours is going to go away today,” said John Reade, head of metals strategy at UBS Investment Bank.

“We are getting back to the stage where positioning makes gold look attractive again and if -- and this is a big if and I am not saying it’s going to happen -- the risk aversion problems get worse, at some stage people are going to stop looking at buying gold as a safe haven.”

Investors have dumped risky assets, sending stocks and high-yielding currencies lower and boosting government bonds, as fears grew that a US housing fallout might trigger a global credit crunch.

European credit markets extended their sharp sell-off after spreads blew wider on Thursday on a scale one analyst compared to the events of the 1998 Russian debt default and Long-Term Capital Management hedge fund crisis.

High-yielding currencies fell sharply in volatile markets.

The rise in risk aversion sent the low-yielding yen to a three-month high against the dollar and a six-week high versus the euro, which fell against the US currency.

The gold market also came under pressure on Thursday due to sales related to futures option expirations and roll-over of contracts.

“The outlook for precious metals is not quite so bright at present, but we expect good news rather than bad from this front,” Commerzbank said in a daily research note.

In other precious metals, platinum fell to a 10-day low of $1,304/1,309 an ounce from $1,315/1,319 in New York, but investors kept an eye on wage negotiations in South Africa, the world’s largest platinum producer.

South Africa’s biggest mining union cancelled wage talks due on Thursday with Anglo Platinum Ltd. because the miner was apparently not prepared to substantially change its offer, a union official said.

Silver was at $12.76/12.81 an ounce, versus $12.72/12.77 in New York, while palladium was down $2 at $362/367 an ounce.

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