ET:Gold eases as Fitch downgrade warning hurts euro
LONDON: Gold prices eased on Monday, extending the previous week's hefty losses, as a warning from Fitch Ratings that it may downgrade France and six other euro zone countries hurt stocks and the euro and fuelled a dash to the dollar.
Spot gold was down 0.3 per cent at $1,594.39 an ounce at 1036 GMT.
The precious metal posted its biggest one-week loss since late September last week, falling to a near 12-week low as concerns over the euro zone debt crisis intensified, boosting the dollar at others assets' expense.
Investors' thirst for the US currency, often seen as a haven from risk, is weighing on dollar-priced gold, which becomes more expensive for holders of other currencies as the unit appreciates.
"You're looking at euro weakness, rather than anything else, as the driving force behind the sell-off," said David Jollie, an analyst at Mitsui & Co Precious Metals. "You've got a stronger dollar and that will tend to lead to lower prices."
Traders with an eye on the end of the year are likely to be loath to add to long positions at this stage, whatever their view of gold prices' longer-term direction, he added.
"Whatever your view, you have to ask what the chances are of making money by the end of the year," he said. "That says to a lot of people that this is not a market to get longer in."
The euro eased towards an 11-month low on concerns that the euro zone sovereign debt crisis would damage global growth, while the dollar also got support on uncertainty after the death of North Korean leader Kim Jong-il.
Though the gold market barely reacted to Kim Jong Il's death, it is sensitive to moves in the wider markets. Gold in recent months has been closely correlated to riskier assets as the funding squeeze forces investors to dump gold to cover losses elsewhere.
The euro was under pressure after Fitch's warning late Friday that it could downgrade France and six other euro zone countries as it believes that a comprehensive solution to the region's debt crisis is "technically and politically beyond reach".
European shares fell, meanwhile, while safe-haven German government bonds rose in early trade.
