Forexpros – Gold futures added to heavy losses during U.S. morning trade on Wednesday, falling to the lowest level since the start of the year as political turmoil in Greece and growing concerns over Spain’s fiscal health drove investors to the relative safety of the U.S. dollar.
On the Comex division of the New York Mercantile Exchange, gold futures for June delivery traded at USD1,587.75 a troy ounce during U.S. morning trade, tumbling 1.05%.
It earlier fell by as much as 1.45% to trade at USD1,579.95 a troy ounce, the lowest since January 3.
Gold futures were likely to find short-term support at USD1,572.65 a troy ounce, the low from January 3 and resistance at USD1,642.95, the high from May 7.
Concerns over Greece’s future in the single currency bloc mounted on Tuesday after Alexis Tsipras, the head of Greece’s second-biggest party Syriza, declared that Greece’s financial aid package is null and void, and called for a moratorium on Greek debt payments.
Tsipras was to hold talks with Greece’s leading political parties later in the day, as attempts to form a government continue, but a second round of elections is looking increasingly likely.
Adding to the gloomy trade environment was a report from German business newspaper Handelsblatt saying that German coalition lawmakers are open to a Greek exit from the euro zone.
The report includes a quote from Klaus-Peter Willsch of the CDU party, saying that Greece should be offered the chance to leave the euro in a controlled manner, while remaining in the European Union.
The risk of Greece leaving the euro by the end of 2013 has risen to as high as 75%, Citigroup said in a report dated May 7.
The political uncertainty fuelled fears that Greece will not have a government in place in time to secure its next tranche of international aid next month, as new elections look increasingly likely, fanning fears over a potential default and exit from the euro zone.
Investors were also eyeing developments in Spain. The yield on the country’s 10-year bonds rose above 6%, amid investor concerns that the debt crisis could spread from Greece.
Market players also remained concerned over whether French president-elect Francois Hollande’s focus on growth rather than austerity measures as a means to tackle the crisis could spark tensions with Germany.
Although gold’s appeal as a safe haven is boosted during times of economic uncertainty, the euro zone’s debt crisis has done little to bolster appetite for the precious metal.
A weakening euro and stronger dollar have weighed on gold instead.
The euro traded at a three-month low against the U.S. dollar, while the dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.4% to trade at 80.25, the highest since April 16.
Prices came under further pressure after breaking below key support levels, triggering fresh sell orders amid bearish chart signals.
Technical traders expect the next level of support for gold to be at USD1,567 after it broke below USD1,620 on Tuesday, the lower end of the price range it had held since early April.
Some market participants noted that heavy losses in stocks and other commodities markets accelerated gold’s sell-off, as traders were forced to sell their gold holdings to raise cash to cover losses elsewhere.
Credit Suisse said in a report recently that gold could see further losses if money managers start paring their holdings of commodities and equities in anticipation of a worsening of Europe’s financial position.
“As we saw at the end of last year, gold is a hedge against all kinds of crises, but not against a liquidity problem, when people are liquidating assets to raise much-needed cash. They also sell gold in this environment,” the bank said in a report.
In October 2008, gold prices tumbled 18% as turmoil in global financial markets led to losses in global equity and commodity markets. The precious metal rallied 23% in the next two months.
Elsewhere on the Comex, silver for July delivery sank 1.7% to trade at USD28.95 a troy ounce, the lowest since January 9, while copper for July delivery dropped 1.3% to trade at USD3.631 a pound.
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