FX:Gold futures down almost 1% as Spain fears push USD higher
Forexpros - Gold futures came under heavy selling pressure on Monday, extending losses from the previous session as mounting fears over surging Spanish borrowing costs prompted investors to shun riskier assets and move in to the relative safety of the U.S. dollar.
On the Comex division of the New York Mercantile Exchange, gold futures for June delivery traded at USD1,644.65 a troy ounce during early European trade, dropping 0.94%.
It earlier fell by as much as 1.1% to trade at USD1,642.25 a troy ounce, the lowest since April 10.
Gold futures were likely to find support at USD1,613.55 a troy ounce, the low from April 4 and resistance at USD1,685.25, the high from April 2.
The cost of insuring Spanish government debt against default rose to an all-time high on Friday, after a report showed that Spain’s banks borrowed a record amount from the European Central Bank in March, underlining concerns about the health of the sector.
Spanish 10-year yields rose above the key 6.0%-level in early trade Monday, trading at 6.1%, the highest since early December 1. Similar-maturity Italian yields increased to 5.64%, while Portuguese yields climbed to 12.6%.
There have been renewed concerns of further debt contagion in the euro zone in recent weeks amid fears Spain will be the next in the euro zone to require a bailout.
Although gold’s appeal as a safe haven is boosted during times of economic uncertainty, the euro zone’s debt crisis has done little to bolster appetite for the precious metal in recent months.
A weakening euro and stronger dollar have weighed on gold instead. The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.3% to trade at 80.27, the highest since April 5.
A stronger U.S. dollar usually weighs on gold, as it dampens the metal's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.
Despite the recent slump, London-based industry research group GFMS said in a report late last week that it expects gold prices to hit USD2,000 “before the year is out”, citing Spain’s debt woes.
Market sentiment looked set to remain fragile ahead of an auction of two and 10-year Spanish governments bonds later in the week, which is being seen as a key test of market appetite for the country’s debt.
Elsewhere on the Comex, silver for May delivery fell 0.3% to trade at USD31.29 a troy ounce, while copper for May delivery tumbled 1.45% to trade at USD3.575 a pound.
The CME Group, which is the operator of the Comex, said late Friday that it will cut margins for silver and copper futures effective after the close of business on April 16.
The amount that speculators must keep on deposit for an initial account in silver futures was reduced 13% to USD18,900 from USD21,600, while the copper margin was cut to USD5,400 from USD6,750.
