Gold holds near $1,250 an ounce

London: Gold held near $1,250 (Dh4,590) an ounce in Europe yesterday, supported by re-emerging concerns over the European banking sector and worries about global economic growth, though strength in the dollar capped gains.

The precious metal is often bought as a haven from uncertainty in other markets.

Spot gold was bid at $1,249.05 an ounce at 0851 GMT, against $1,249.55 late in New York on Monday. US gold futures for December delivery fell 30 cents to $1,250.80.

Equities slipped, German government bonds rose and the dollar climbed after a Wall Street Journal report said Europe's recent "stress tests" of major banks underestimated some lenders' holdings of potentially risky government debt.

"This morning we've seen risk aversion coming back with the Wall Street journal report," said Credit Agricole analyst Robin Bhar. "That has obviously impacted on equities, we've seen safe-haven flows into the dollar, but not into gold."

"If gold is getting those flows, it is really swimming against the tide, as the dollar is rising, capping gains."

Stronger dollar

A stronger dollar curbs gold's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies, weighing on prices.

The euro fell 0.9 per cent against the dollar, on fresh worries about the Eurozone banking system after the WSJ report. The dollar index, which tracks the unit's performance against a basket of others, rose 0.6 per cent. Meanwhile, German government bonds rose, recovering some ground after three sessions of steep losses last week.

On the wider markets, European shares slipped amid concerns over the health of the banking sector, while world stocks retreated from the previous session's one-month high.

A healthier tone to equity markets after US economic data broadly pleased investors last week eroded some of gold's appeal as an alternative asset, analysts said. The largest gold exchange-traded fund, the SPDR Gold Trust, reported outflows at the end of last week.

"High prices and already inflated investment demand limited investor interest in the yellow metal, while many started looking for returns elsewhere on high hopes for a continued economic recovery," said VTB Capital analyst Andrey Kryuchenkov in a note.

Among other commodities, oil prices fell more than $1 a barrel and base metals like copper, zinc and lead all declined as gains in the dollar make them more expensive for non-US investors.

Demand for gold was steady in Asia, however, as the festival season gets underway in India, where gold is gifted in religious celebrations.

Among other precious metals, platinum was at $1,551.50 an ounce against $1,555.90, while palladium was at $521.50 against $523.83. Both have benefited from expectations for a recovery in autocatalyst demand — the biggest segment of consumption — though gains of palladium have outstripped those of platinum.