NEW YORK—Gold futures were under pressure as investors continued to favor holding cash instead of precious metals amid uncertainty about the euro zone's plans for its bailout fund.
The most actively traded gold contract, for December delivery, was down $28.30, or 1.7%, to $1,618.70 a troy ounce in early trade on the Comex division of the New York Mercantile Exchange.
European stocks and commodities markets eased as investors cast a nervous eye on negotiations on the European Financial Stability Facility. Draft guidelines for the bailout fund were presented to German lawmakers Thursday, and news filtered out that the proposal would, as expected, allow the EFSF to buy sovereign debt directly from debt-laden euro-zone states. The news pushed gold off its intraday lows, but futures held in negative territory.
The fear for traders of gold and other commodities is that a failure to come up with a robust backstop for Europe's battered financial system could freeze world credit markets and force cash-strapped investors to pull out of risky assets.
"Investors remain cautious until more details are known" about the bailout fund, Barclays Capital analyst Suki Cooper said in a note.
But gold may not have further to fall, HSBC analyst Jim Steel said.
"Until this crisis is over, we believe gold will remain well bid due to its utility as a safe haven and portfolio diversifier," he wrote in a note.
Some investors buy gold on the belief that it holds its value better than other assets during economic turmoil. Gold rose for much of the last year when Europe's debt crisis rattled global markets, but that relationship has broken down recently.
Gold plunged in September from record highs above $1,900 an ounce, as investors moved to the U.S. dollar, another perceived safe haven, and cashed out of gold to cover losses in other markets. The precious metal has been unable to recover its momentum since, shuffling between $1,600 and $1,700 and largely tracking moves in risky assets.
Gold futures didn't show a strong reaction to unconfirmed reports that ousted Libyan leader Col. Moammar Gadhafi had been captured by rebel fighters. The precious metal rose early this year on safe-haven demand as the country descended into a protracted civil conflict, but economic worries from the U.S. and Europe recently have drawn traders' attention away from the unrest in the Middle East and North Africa.
