Tags: Gold Drops as Dollar Rallies on Ireland Fears

Gold Drops as Dollar Rallies on Ireland Fears

Tuesday, 16 Nov 2010 03:27 PM

Gold prices shed more than 2 percent Tuesday, on track for their biggest three-day loss in nearly a year, as fears over Ireland's fiscal health sent the dollar rallying against the euro, sparking a cross-asset sell-off.

While gold often benefits as a risk-aversion strategy, investors sometimes liquidate positions to cover losses elsewhere in their portfolios.

Gold's drop was similar to a rout on Friday, when it suffered its biggest fall in four months, as precious metals were caught up in near indiscriminate selling across the commodity spectrum rather than suffering from any bullion-specific bearishness.

"There is across-the-board, margin-call type liquidation going on. Investors hit by margin calls know that they can always get liquidity from the gold market to raise capital," said Dennis Gartman, publisher of the investment newsletter The Gartman Letter.

Some investors also ratcheted back their expectations of the Federal Reserve's bond-buyback program to stimulate the economy, after a group of Republican economists and executives called on the Fed to drop its plan to buy $600 billion more in Treasury bonds, Gartman said.

Spot gold fell 2 percent to $1,333.40 an ounce at 12:39 p.m. EST, having earlier set a two-week low at $1,329.45. Bullion has lost more than 5 percent in the past three sessions, its biggest loss since early December.

U.S. December gold futures fell 2.6 percent to $1,333.10 an ounce in heavy volume.

"Gold is a risk asset. We saw that post-Lehman Brothers, when everyone thought gold would benefit and it sold off," said Credit Agricole analyst Robin Bhar.

"People would liquidate, given that they've probably secured good profits in the gold market ... and have taken some money off the table," he said.

Gold, which is still up 22 percent this year, has lost about 4 percent over the past week in the broad sell-off that has knocked copper, crude oil and grains, which have in turn suffered from mounting expectations for more monetary tightening in top raw materials consumer China.

Ireland came under intense pressure on Tuesday to request aid over its debt crunch in what the European Council's president called a "survival crisis" for the euro zone and the wider European Union.

European officials were weighing a rescue package of 80 billion to 100 billion euros for Ireland and a separate, smaller bailout for its hard-pressed banking sector, the Wall Street Journal reported on Tuesday.

The euro fell to a seven-week low against the dollar on Tuesday amid heightened worries about a deepening euro zone debt crisis, with losses accelerating after prices broke key support levels.

FUNDS COOL TO GOLD

Coupled with flows out of hard assets was a cooling towards bullion from some of the world's best-known gold bulls.

The most recent quarterly securities filings showed George Soros cut his exposure to gold in the last quarter, along with Eric Mindich.

Billionaire investor Soros may be cutting back on his gold bets, but he says the precious metal still has some kick to it, as long as conditions like low interest rates prevail.

"The conditions for gold are pretty perfect," he said during a speech in Toronto. "The big negative is that too many people know this and a lot of hedge funds are very exposed ... Gold has a tendency to go parabolic," he added, noting its tendency to fall as quickly as it rises.
Spot silver dropped 1.2 percent to $25.12 an ounce.

Platinum and palladium were both down sharply on the day, in line with other metals, ignoring a bullish outlook for the market next year from refiner Johnson Matthey, which said improving supply and demand fundamentals should bring both markets broadly into balance next year.

Platinum fell 1.9 percent to $1,636.74 an ounce. Palladium was down 4.5 percent at $639.47, in its third successive daily decline.

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Gold prices shed more than 2 percent Tuesday, on track for their biggest three-day loss in nearly a year, as fears over Ireland's fiscal health sent the dollar rallying against the euro, sparking a cross-asset sell-off. While gold often benefits as a risk-aversion...
Gold Drops as Dollar Rallies on Ireland Fears
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2010-27-16
Tuesday, 16 Nov 2010 03:27 PM
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