Gold futures drop as U.S. dollar firms against euro

Gold futures declined during U.S. morning hours on Monday, holding on to earlier losses as renewed concerns over the euro zone’s debt crisis and uncertainty over whether Spain will need a full-scale bailout boosted demand for the U.S. dollar. On the Comex division of the New York Mercantile Exchange, gold futures for December delivery traded at USD1,767.15 a troy ounce during U.S. morning trade, shedding 0.6%. Earlier in the session prices fell by as much as 1% to trade at a session low of USD1,757.95 a troy ounce. Gold futures rose to a high of USD1,787.55 a troy ounce on September 21, the strongest level since February 29. Gold prices were likely to find short-term support at USD1,751.95 a troy ounce, the low from September 18 and resistance at USD1,792.25, the high from February 29. The euro lost ground following a report showing that Germany’s Ifo business confidence index deteriorated to the lowest level since March 2010 this month, amid ongoing concerns over euro zone’s debt crisis. The German Ifo index fell to 101.4 from 102.3 in August, the fifth monthly decline in a row, compared to expectations for a reading of 102.5. Meanwhile, uncertainty over whether Spain will request a full scale sovereign bailout weighed. Madrid is to present its draft budget for next year and announce structural reforms on Thursday, while the results of bank stress tests are due on Friday. In addition, ratings agency Moody’s is expected to complete a ratings review on Spain later this week. Greece also added to the risk-off trade environment, after German magazine Der Spiegel reported over the weekend that the country faces a EUR20 billion budget shortfall, almost twice as much as previously thought. The heightened sense of risk aversion prompted investors to shun riskier assets, such as stocks and commodities, and flock to the relative safety of the U.S. dollar. The dollar index, which tracks the performance of the U.S. dollar against a basket of six other major currencies, advanced 0.42% to trade at 79.78, the highest since September 13. A stronger U.S. dollar usually weighs on gold, as it dampens the metal's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies. Losses were limited as the precious metal drew support from expectations central banks around the world will continue to introduce monetary easing measures to stimulate the global economy. The precious metal has rallied on past monetary stimulus measures. Investors tend to flock to gold on fears that excess liquidity would erode the value of fiat currencies and spark inflation. Gold futures have gained nearly 10% since the beginning of August, buoyed by recent stimulus efforts by major central banks around the world. Elsewhere on the Comex, silver for December delivery tumbled 1.5% to trade at USD34.11 a troy ounce, while copper for December delivery lost 1.2% to trade at USD3.743 a pound.

Courtesy: ForexPros