By Rujun Shen
SINGAPORE, Dec 19 (Reuters) - Gold prices fell nearly
1 percent on Monday, extending last week's loss, which was the
biggest in nearly three months, as rating agency Fitch's warning
on downgrading France kept investors on the edge about the
situation in Europe.
Fitch Ratings warned it may downgrade France and six other
euro zone nations as it believes a comprehensive solution to the
region's debt crisis is "technically and politically beyond
reach".
Asian shares fell and the dollar edged higher after news of
the death of North Korean leader Kim Jong-il fanned fears of
regional instability.
Though the gold market barely reacted to Kim's death, it is
prone to moves in the currency market as well as equities. 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 two-year-old euro zone debt crisis remains the
overarching concern in the market. The lack of a solution,
together with tightened liquidity, drove gold down more than 6
percent last week.
"In the short term we are seeing greater downside for gold,"
said Ong Yi Ling, an analyst at Phillip Futures, adding that
$1,550 would provide support in the near term.
"Gold is still taking cues from the development in Europe --
whether there will be more sovereign debt ratings downgrades."
As financial markets enter the penultimate week of the year,
liquidity is expected to shrink, with investors closing their
books for the year, which may leave prices prone to wild swings.
Spot gold fell nearly 1 percent to $1,582.84 an
ounce, before recovering to $1,593.29 by 0703 GMT. U.S. gold
declined as much as 0.8 percent to $1,585.5, and traded
at $29.01.
Technical analysis suggested spot gold could fall to $1,417
over the next three months, said Reuters market analyst Wang
Tao.
Spot silver fell 3.4 percent to an intra-day low of
$28.7 an ounce, before trimming some losses to $28.96.
The most-active U.S. silver futures contract fell
3.2 percent to $28.72 and recovered to $29.01.
Gold prices will fall below $1,500 an ounce over the next
three months and are unlikely to retest September's all-time
highs until late 2012 at the earliest, a Reuters poll showed.
Managed money in gold futures and options cut bullish bets
for the second consecutive week as the price of bullion fell
sharply during the period, the latest data from the U.S.
Commodity Futures Trading Commission showed.
Holdings of SPDR Gold Trust, the world's largest
gold-backed exchange-traded fund, remained unchanged from a day
earlier at a one-month low of 1,279.975 tonnes by Dec 17, down
15.426 tonnes, or 1.2 percent from a week earlier.
"The key factors that will determine how supported the gold
market is on the downside will be whether the 'sticky' ETP
(exchange-traded product) holdings remain relatively stable and
whether physical demand responds to much lower prices," said
Barclays Capital in a research note.
Precious metals prices 0703 GMT
Metal Last Change Pct chg YTD pct chg Volume
Spot Gold 1593.29 -5.46 -0.34 12.25
Spot Silver 28.96 -0.74 -2.49 -6.16
Spot Platinum 1409.99 -6.62 -0.47 -20.23
Spot Palladium 615.97 -3.71 -0.60 -22.96
TOCOM Gold 3988.00 10.00 +0.25 6.95 62762
TOCOM Platinum 3547.00 -38.00 -1.06 -24.47 12414
TOCOM Silver 72.20 -0.70 -0.96 -10.86 588
TOCOM Palladium 1549.00 -30.00 -1.90 -26.13 163
COMEX GOLD FEB2 1596.10 -1.80 -0.11 12.29 24037
COMEX SILVER MAR2 29.01 -0.67 -2.24 -6.25 4291
Euro/Dollar 1.3012
Dollar/Yen 77.96
TOCOM prices in yen per gram. Spot prices in $ per ounce.
COMEX gold and silver contracts show the most active months
