Gold Prices Ease on Renewed Concerns About Euro-Zone Debt

Gold prices slipped lower on Thursday due to the ongoing euro-zone debt crisis and a stronger dollar, as investors remained cautious about the financial health of European banks. The February gold contract on the Comex division of the New York Mercantile Exchange declined $3.80, or 0.2%, to $1,609.80 a troy ounce, while December-delivery gold dropped $1.90, or 0.1%, to $1,610 a troy ounce. Analysts warned that the crisis could lead to a drying-up of liquidity, posing a significant risk to commodities, including gold.

Key Takeaways:

• The euro-zone debt crisis continued to dominate market attention, with concerns about Europe's banks outweighing optimism over the European Central Bank's liquidity program.
• The ECB's emergency loans were taken up by over 500 banks, which borrowed a total of €489 billion, but this move sparked fresh worries about liquidity.
• A stronger dollar weighed on gold prices, as gold futures are denominated in dollars and appear more expensive to buyers using other currencies when the dollar strengthens.
• The 30-day average correlation between gold and the ICE U.S. Dollar Index is at -0.9, indicating a strong inverse relationship between the two assets.
• Gold trading volumes have declined in recent days as traders wound down their holdings ahead of the Christmas holidays and many market participants moved to the sidelines.

Statistics:

• Gold prices declined by $3.80, or 0.2%, to $1,609.80 a troy ounce for the February contract.
• December-delivery gold dropped $1.90, or 0.1%, to $1,610 a troy ounce.
• Over 500 banks borrowed a total of €489 billion in emergency loans from the European Central Bank.
• The ICE U.S. Dollar Index was cited as a factor in gold prices moving in an inverse direction.

Sources:

• Dow Jones Commodities News via Comtex
• Dow Jones Newswires
• VTB Capital analyst Andrey Kryuchenkov
• Standard Bank analysts