Gold Slips as Dollar Gains, Eyes on US Debt

By: Reuters

Gold fell on Friday, as the dollar rose against the euro after Moody's threatened to cut Spain's credit rating, although uncertainty about the US debt impasse supported bullion after Republicans delayed a vote on a debt plan.

Tom Grill | Iconica | Getty Images

The euro came under pressure after ratings agency Moody's put Spain on review for possible downgrade, raising fears of an escalation of the peripheral euro zone debt problem and lifting the dollar against a basket of currencies.

A strong dollar makes gold more expensive for holders of other currencies.

Spot gold [XAU=  1614.9399    -1.41  (-0.09%)   ]was bid at $1,613.59 a troy ounce, down 0.2 percent, from $1,616.35 an ounce late in New York on Thursday. 

"You have a question of long-term fiscal sustainability and so far neither Europe nor the U.S. have demonstrated an ability to ensure long-term fiscal sustainability," said Nic Brown, an
analyst at Natixis.

"If you have worries that there is not going to be any deal (in the U.S.) come August 2 then there is scope for some upward correction (in gold prices) from where we are now." 

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Gold hit an all-time high at $1,628.00 an ounce on Wednesday, and is up nearly 8 percent so far this month as nervousness over the debt crisis in the U.S. and the euro zone spurred buying in gold as a hedge against uncertainty.

The precious metal is up 13.6 percent so far this year.

"We very much see precious prices as being part of a liquidity-fuelled bubble, whether you call it debt monetisation or quantitative easing or just holding interest rates at abnormally low levels," Brown said. 

In the United States, some fiscally hardline Republican lawmakers blocked a budget deficit plan proposed by their own congressional leaders on Thursday, and delayed an emergency meeting to Friday, in a further obstacle in efforts to avert a debt default ahead of an Aug. 2 deadline to raise the country's debt ceiling  . 

"Despite slightly lower gold prices, the financial markets remain nervous over the possibility that an agreement on the debt ceiling may not be reached before the deadline," HSBC analysts wrote in a note. 

Investor unease can be seen in the holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust [GLD  157.32    0.13  (+0.08%)   ], which rose 1.5 percent on Thursday from a day earlier to a
six-month high of 1,262.98 tonnes by July 28.

South Africa Dispute

Labour strife in South Africa was closely watched by the market, with gold mine workers and the major producers scheduled to meet on Friday for talks aimed at ending a strike.

The impact of supply outages, particularly short-term ones, on gold is usually fairly soft, given the availability of above-ground stocks of the metal relative to other commodities. However, the strike could give more of a lift to platinum prices if it spreads to that sector.

Around four in every five ounces of platinum is sourced in South Africa, so supply disruptions in the republic have a significant effect on metals prices. South African supply outages were a major factor in driving platinum to a record $2,290 an ounce in early 2008.

Spot platinum [XPT=  1779.00    -2.75  (-0.15%)   ] edged down 0.4 percent to $1,774.40 an ounce. 

Spot silver [XAG=  39.78    0.12  (+0.3%)   ] fell 0.2 percent to $39.48 an ounce, off a more than two-month high of $41.42 hit this week. It was set to rise nearly 14 percent in July, its best month since April. 

Spot palladium [XPD=  821.45    -2.30  (-0.28%)   ] added 0.1 percent to $824.75 an ounce, and is heading for a monthly rise of nearly 10 percent, its best this year.

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