Forexpros – Gold futures retreated in quiet post-Christmas action on Tuesday, falling below USD1,600-an-ounce as investors were reluctant to open new positions before the new year amid lingering concerns over the euro zone’s debt crisis.
On the Comex division of the New York Mercantile Exchange, gold futures for February delivery traded at USD1,596.05 a troy ounce during early U.S. morning trade, slumping 0.78%.
It earlier fell by as much as 0.96% to trade at USD1,592.95 a troy ounce, the lowest since December 19.
Gold futures were likely to find short-term support at USD1,585.65 a troy ounce, the low of December 19 and resistance at USD1,615.55, the high of December 23.
With most investors already away on year-end leave, trading volumes were expected to remain low, resulting in volatile trade.
Investors were eyeing Italian three and ten-year bond auctions later this week. The yield on Italy’s ten-year bonds rose to as high as 7.13% in early European trade, topping the critical 7% threshold widely viewed as unsustainable in the long-term.
Meanwhile, lingering concerns over the threat of mass credit ratings downgrades for euro zone countries also added to investors’ nervousness.
Ratings agency Standard & Poor’s has yet to announce if it will cut ratings on any of the 15 countries it has on credit watch negative. Two independent European government sources said Friday that S&P was not expected to release its verdict on euro zone debt ratings until January.
For much of 2011, investors’ typical reaction to bad news from Europe was to buy gold, as it boosts the safe haven appeal of the precious metal, but that relationship has unraveled recently.
However, gold has been pressured in recent months, with its safe haven appeal waning as investors prefer the U.S. dollar as their safe haven of choice amid Europe’s deepening sovereign debt crisis.
Year-end selling by hedge funds and tight liquidity in European interbank money markets have also contributed to recent price falls.
Data released earlier in the day showed that the use of the European Central Bank’s overnight deposit facility reached a new, all-time high Monday, as euro zone banks increasingly turned to the ECB as a safe-haven for extra funds.
The report added to speculation that the central bank’s three-year loan operation last week did little to strengthen the region’s banking sector.
Gold prices have lost nearly 15% since hitting a record high of USD1920 in early September. Despite the slump, prices are still 13% higher on the year, on track for its 11th consecutive annual gain.
In October 2008, gold prices tumbled 18% as turmoil in 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 March delivery dropped 0.9% to trade at USD28.82 a troy ounce, while copper for March delivery tumbled 1.4% to trade at USD3.419 a pound.
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