LONDON: Gold fell for the first time in a week on Thursday after a deal by European leaders to tackle the euro zone debt crisis encouraged investors to delve back into riskier assets such as higher-yielding currencies, equities and industrial commodities.
After a marathon meeting in Brussels, involving bankers, heads of state, central bankers and the International Monetary Fund, euro zone leaders struck a deal with private banks and insurers for them to accept a loss on their Greek government bonds under a plan to lower Greece's debt burden and try to contain the two-year-old euro zone crisis.
Under the deal, the private sector agreed to voluntarily accept a nominal 50 per cent cut in its bond investments to reduce Greece's debt burden by 100 billion euros ($138.2 billion), cutting its debts to 120 per cent of GDP by 2020, from 160 per cent now.
Global equities neared two-month highs, while the euro hit its highest since early September, set for its third weekly gain, its longest such stretch since late February this year.
Investor risk appetite weighed on the gold price, which usually tends to benefit from uncertainty, leaving spot gold down by more than 0.5 per cent at $1,710.70 an ounce.
"This morning is all about risk-on. Gold has had a mixed relationship with risk recently - euro strength has generally been supportive since the September sell-off, but more recently we saw the correlation break down and gold trade as a safe haven asset once again," said RBS commodities strategist Nikos Kavalis. "Today the price has come under some pressure but has been supported by good buying from private banks."
"We are looking at ongoing accommodative monetary policy in the US and Europe and this should continue to help gold. Macroeconomic uncertainty is also supportive - let's not forget that in addition to the European debt problem we are getting closer and closer to the Nov. 23 deadline for the US debt reduction deal. I cannot be bearish on gold at the moment," he said.
In the US, a new congressional "super committee" has until Nov. 23 to make recommendations to the Senate and House of Representatives on how to reduce the budget deficit.
