Gold edges higher as Spanish bill sale lifts euro

Gold prices steadied above $1,650 an ounce in Europe on Tuesday, taking a breather after two sessions of losses, as the euro rose to a session high against the dollar and stock markets extended gains after a well received Spanish debt auction.

By (Reuters)

Published: Tue 17 Apr 2012, 5:04 PM

Last updated: Tue 7 Apr 2015, 11:24 AM

Spot gold was at $1,651.53 an ounce at 0937 GMT against $1,651.60 late in New York on Tuesday, while US gold futures for June delivery were up $3.40 at $1,653.10.

Prices fell more than 1 percent in the last two days as the euro was hit by worries over euro zone debt. While these concerns supported gold as a safe haven last year, in recent months currency pressures have proved a more important driver.

“Gold, on the balance of probabilities, will continue to be correlated with the euro/dollar,” RBS analyst Nikos Kavalis said. “Bad news for Europe for the time being will be bad news for gold, and I can’t see this changing unless there is a very dramatic development.”

The euro clawed back lost ground against the dollar on Tuesday, extended gains after an auction of Spanish treasury bills and hit session highs after the German ZEW economic survey beat expectations.

Spain sold slightly more treasury bills than expected in an auction, which is an important precursor to a Spanish sale of benchmark 10-year bonds on Thursday.

After the Spanish auction, German government bond futures fell to a session low and European shares extended gains, with investors attracted by low prices after a steep month-long sell-off.

Concerns about Spain’s finances kept the overall mood cautious and volumes low, however. A dramatic worsening of the situation in the euro zone could support gold in the longer term as a haven from risk, analysts said.

“Jitters over the debt crisis in the monetary union are far from over, and this could be potentially gold-supportive in the second quarter,” VTB Capital said in a note.

“Many still doubt that Madrid can implement the necessary budget cuts without the situation spiralling out of proportion in an economy that is already suffering from high unemployment and negative growth rates.”

PHYSICAL DEMAND SOFT

Physical gold demand has softened a touch this year from last year’s levels. American Eagle gold coin sales from the US Mint fell 30 percent in the first quarter, and demand in India, historically the world’s biggest gold consumer, has been light.

India’s central bank cut interest rates on Tuesday for the first time in three years by an unexpectedly sharp 50 basis points to give a boost to sagging economic growth. If this stimulates growth, it is likely to prompt more gold buying.

“The unexpected lowering of the interest rate in India could lend support by increasing the hitherto weak demand for gold in the country,” Commerzbank said.

Among other precious metals, silver was up 0.3 percent at $31.54 an ounce, spot platinum was flat at $1,568.94 an ounce, and spot palladium was up 0.4 percent at $650.70 an ounce.

The platinum/gold ratio, or the number of gold ounces needed to buy an ounce of platinum, rose to a two-month high at 1.05 on Tuesday. As an investment vehicle, gold is finding more support in the current climate than industrial metal platinum, which is heavily exposed to the European car market.

“Platinum lacks safe-haven status and has limited investment demand. With jewellery and the automotive industry as key end markets, slowing global GDP and lower discretionary spending put demand at risk,” Morgan Stanley said in a weekly note.

Both platinum and palladium are used in catalytic converters. A heavier loading of platinum is used in the diesel autocatalysts most commonly seen in Europe, while the petrol engines favoured in the United States and China carry a heavier loading of palladium.

Platinum’s ratio to palladium also fell back to its lowest in a month, with an ounce of platinum now equivalent to 2.41 ounces of palladium, down from 2.5 a week ago.