ENM: Gold hovers near two-month lows as euro struggles
LONDON: Gold steadied on Wednesday, after having neared two-month lows the day before in its largest monthly slide since September, prompted by the dollar's rise against the euro to 11-month highs as the European debt crisis roars on.
Gold has lost about 6 percent in value so far this month, making it its weakest December performance since 2008, when the global credit crunch was at its worst.
The metal's safe-haven status has been called into question given its inability to profit from the degree of risk aversion and uncertainty among investors.
The lure of the dollar as a comparatively secure alternative to the euro, which has pushed local prices for key consuming regions such as India to record highs and deterred buying, together with an investor dash for cash have proven to be too strong for gold to flaunt its safe-haven qualities.
Spot gold was last quoted unchanged on the day at $1,630.89 an ounce by 1111 GMT, set for a 4.2 percent fall this week, its largest weekly slide in nearly three months.
"At the moment, there has been a clear move towards the dollar; and the dollar, nine times out of 10, has not been gold's best friend," Nikos Kavalis, a commodities strategist at RBS, said.
"As long as the dollar is gaining, at least until the end of the year, gold will not be in the best position and will remain under pressure," he said, adding: "The market is tending to want to see things from a cautious point of view. We are near the end of the year and no one wants to be particularly heroic."
The Federal Reserve on Tuesday warned that turmoil in Europe presents a big risk to the U.S. economy, leaving the door open to possible further steps to boost growth even though it noted a somewhat stronger labor market.
The central bank said the U.S. economy was "expanding moderately" despite an apparent slowing in the world economy. But while there had been "some" improvement in the job market, unemployment remained elevated and housing depressed, it said.
CASH FAVOURED There has been a clear tendency among investors to hold cash, rather than hard assets and this has accelerated as the end of the year approaches.
The most recent Reuters asset allocation poll showed global portfolio managers held more cash in November than at any time in at least the last seven years, another of the factors undermining gold's safe-haven properties in the last few weeks.
HSBC said the lack of a commitment to inject more stimulus into the economy by the Fed was a negative factor for gold, along with a push among investors to get more cash onto their balance sheet, but the bank maintained its positive longer-term view for the bullion price.
"Additionally, some macro hedge funds are liquidating gold holdings and taking profits in a difficult year. As trading volume typically drops toward year-end, we expect increasingly volatile price swings," wrote HSBC analyst James Steel in a note.
"Potential gold buyers may be reluctant to come forward as the year draws to a close. Gold could easily slide through the holidays", he said, noting the resilience of holdings of metal in exchange-traded products, which remain near record highs.
