Forexpros – Gold futures traded close to the lowest level in nearly six-months on Thursday, as ongoing concerns over the euro zone’s sovereign debt crisis prompted investors to liquidate profitable gold holdings to raise cash before the year’s end.
On the Comex division of the New York Mercantile Exchange, gold futures for February delivery traded at USD1,533.45 a troy ounce during early U.S. morning trade, plunging 2%.
It earlier fell by as much as 2.6% to trade at USD1,523.45 a troy ounce, the lowest since July 6.
Gold futures were likely to find support at USD1,510.45 a troy ounce, the low of July 6 and resistance at USD1,594.25, the previous day’s high.
With most investors already away on year-end leave, trading volumes were thin, resulting in tight liquidity conditions and irregular volatility.
Concerns over the euro zone’s debt crisis lingered after Italy’s Treasury sold EUR7 billion of long-term debt maturing between 2014 and 2022, below the maximum target of EUR8.5 billion.
The country sold EUR2.5 billion of 10-year bonds, maturing in March 2022, at an average yield of 6.97%, down from November’s euro-record high 7.56%. The country also auctioned EUR2.5 billion of three-year bonds, at an average yield of 5.62%.
Following the auction, the yield on Italy’s 10-year bonds rose to 7.12%, above the critical 7% threshold widely seen as unsustainable in the long-term. Yield’s last traded at 7.01% after the European Central Bank purchased Italian bonds in the secondary market.
For much of the last year, 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, with investors preferring the relative safety of the U.S. dollar.
The dollar rose to a 15-month high against the euro, while the dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was up 0.16% to trade at 81.03, hovering just below an 11-month high.
Year-end selling by hedge funds and tight liquidity in European interbank money markets have also contributed to recent price falls.
The European Central Bank said earlier that overnight deposits at its lending facility receded to EUR436 billion, after hitting a record of EUR452 billion the previous day, underscoring European banks’ nervousness to lend to each other.
Swiss lender Credit Suisse said in a report earlier that, “The stress in the banking sector has increases as indicators such as the euro/dollar basis swaps show. There is a shortage of liquidity and, if you have to refinance, you have to sell your assets, including gold.”
“Gold is not a safe haven assets against a liquidity crisis. Banks need to sell assets to raise cash and avoid bankruptcy,” the report added.
Gold prices have declined for the past six trading sessions, the longest losing streak since October 2009. Prices have tumbled nearly 20% since hitting a record high of USD1920 in early September. Despite the slump, prices are still 10% higher on the year, on track for its 11th consecutive annual gain.
Elsewhere on the Comex, silver for March delivery tumbled 1.9% to trade at a three-month low of USD26.72 a troy ounce, while copper for March delivery added 0.35% to trade at USD3.377 a pound.
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