(Reuters) - Gold fell in Europe
on Friday after China's central
bank raised lenders' reserve
requirements by 50 basis
points, with softer haven
demand for the metal after
solid bond sales by Portugal
and Spain also weighing on
prices.
But physical demand for gold in Asia is still likely
to underpin the precious metal, analysts said,
with Chinese buyers moving into the market
ahead of the Lunar New Year in February.
Spot gold was bid at $1,368.45 an ounce at 5:47
a.m. ET, against $1,372.75 late in New York on
Thursday, having earlier hit a low of $1,365.33.
U.S. gold futures for February delivery fell $18.80
an ounce to $1,368.20.
China's central bank raised lenders' required
reserves for the fourth time in just over two
months on Friday, making good on its vow that
inflation fighting will be a top priority for the year.
Gold is sometimes seen as a hedge against rising
inflation, and also benefits widely from a low
interest rate environment.
"China's move of course has consequences for
the gold market, but it is not (just) China that is
playing a role," said Peter Fertig, a consultant at
Quantitative Commodity Research. "After
yesterday's ECB conference the market is also
concerned that the ECB might hike rates earlier
than previously assumed."
The European Central Bank said on Thursday that
the euro zone faces short-term price pressures
which may linger, showing it could raise interest
rates to contain inflation even while the bloc is
gripped by a debt crisis.
"Also bond auctions for Portugal, Spain and Italy
went well, credit default swaps are declining, and
spreads over German bunds are falling, which
indicates there is less reason to be concerned
about the euro zone debt crisis," Fertig added.
"Investors are moving again out of safe havens
into more risky assets, which also weighs on
gold," he said.
The euro earlier hit a one-month high against the
dollar and the Swiss franc after tough talk on
inflation from the European Central Bank and an
easing of debt worries after solid bond sales by
Portugal and Spain.
The European currency shed gains after China's
announcement, but quickly crept higher once
again. Nonetheless, gold prices have struggled to
mirror its strong performance.
"Gold's inability to follow the euro/dollar higher
can be attributed to this week's successful
auctions in the euro zone periphery, and the
associated dampening of sovereign debt
concerns," said UBS analyst Edel Tully in a note.
DEBT CONCERNS
Worries over certain euro zone countries' debt
levels can work two ways for gold, lifting prices
as investors choose gold as a haven from risk,
but weighing on them via the pressure they exert
on the euro.
Traders in Asia reported strong physical gold
buying, particularly from China, on Friday, but
large bullion-backed exchange-traded funds
Holdings of the world's largest gold ETF, New
York's SPDR Gold Trust, fell by more than 6
metric tons on Thursday and are down more
than 15 metric tons so far this year.
Among other precious metals, spot silver was
bid at $28.60 an ounce against $28.67.
The gold:silver ratio -- the number of ounces of
silver needed to buy an ounce of gold -- rose to a
one-month high on Friday at just below 48,
showing that silver, as is typical, is
underperforming gold in a falling market.
Platinum was at $1,807.74 an ounce against
$1,799.99, while palladium was at $797 against
$803.75.
Source: Http://www.reuters.com/article/idUSTRE6BF5L920110114
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