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Gold Loses Some Luster as China Tightens

Sunday, 12 Dec 2010 01:28 PM

Gold fell Friday after China raised bank reserve requirements and investors took profits in bullion U.S. data showing rising consumer confidence and a shrinking trade gap.

For the week, bullion fell more than 2 percent, its biggest weekly decline in nearly two months, as rising yields for U.S. Treasuries prompted some investors to take profits in precious metals and allocate some funds to government debt.

Suki Cooper, precious metals analyst at Barclays Capital, said profit-taking pressured gold but economic uncertainty kept longer-term investment demand stable across precious metals.

"Gold has still found healthy physical demand upon price dips even after the seasonally strong period for demand, but perhaps more importantly, we haven't seen a surge in scrap supply," Cooper said.

HSBC and other bullion banks also said steep declines in prices triggered more gold buying in emerging markets. They pointed to high premiums in India and China as evidence of strong physical demand.

Spot gold slipped 0.1 percent to $1,385.92 an ounce at 2:10 p.m. EST, sharply below a record high at $1,430.95 set Tuesday. U.S. February gold futures settled down $7.90 at $1,384.90.

Spot silver dropped 0.2 percent to $28.65 an ounce, retreating after a rally to $30.68 on Tuesday.

COMEX gold and silver futures volume were both more than 40 percent below their 30-day averages, preliminary Reuters data showed, as some trading desks and funds already have closed their books ahead of the year end.

BNP Paribas analyst Anne-Laure Tremblay said year-end book squaring was also aiding downside pressure in gold. "Investors who have performed well this year may be looking to protect their gains rather at this stage," she said.

Earlier, China's central bank said it was raising lenders' required reserves by 50 basis points, effective Dec. 20, its sixth official increase this year.

"Tighter global monetary policy is bad for gold, and this is tighter monetary policy. But only slightly, and in one part of the world, so the impact is not huge," said analyst Matthew Turner at Mitsubishi Corp.

U.S. data showed consumer confidence rose to its highest level in six months, while the trade deficit contracted much more than expected. Investors grew less worried about the economy, cutting safe-haven demand for gold.

U.S. Treasuries prices fell, capping off a week of selling spurred by rising growth outlooks and deficit worries. Slumping prices raised yields, prompting some reallocation from precious metals to fixed-income assets.

 

PHYSICAL BUYING SUPPORTS

Physical demand has limited declines in gold prices.

"Tuesday-Thursday was our strongest three-day run of physical sales to India since late October, when gold was trading around $1,320," said UBS analyst Edel Tully.

"Physical buying from India and other centers this week was likely one of the reasons more investor longs didn't liquidate, as strong physical demand is often a sign that a downtrend is about to bottom."

Investors are also eyeing a Federal Reserve meeting next Tuesday, the first after fierce debate on whether the central bank's further quantitative easing would help the world's largest economy.

For silver, the U.S. Mint is relaunching sales of its five-ounce "America the Beautiful" silver coins on Friday after a delay this week due to complaints about high prices charged by dealers.

In other metals, platinum eased 0.1 percent at $1,673.99, while palladium slipped 0.5 percent to $732.

© 2017 Thomson/Reuters. All rights reserved.

 
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Gold fell Friday after China raised bank reserve requirements and investors took profits in bullion U.S. data showing rising consumer confidence and a shrinking trade gap. For the week, bullion fell more than 2 percent, its biggest weekly decline in nearly two months, as...
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2010-28-12
Sunday, 12 Dec 2010 01:28 PM
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