Business | Markets
Sovereign debts take shine off gold
Yellow metal retreats with oil over the week as investors keen on risk aversion turn to dollar
- Financial Times
- Published: 00:00 February 7, 2010
- Image Credit: FRANCOIS NEL/Gulf News
- A shop in the Deira Gold Souq displays jewellery. Gold’s reputation as a wealth haven was tested last week as the precious metal retreated along with oil.
London : Gold's role as a haven in times of turbulence was tested last week as bullion was forced on to the retreat alongside oil and base metals in the face of growing strains in sovereign debt markets.
Gold fell 2.3 per cent to $1,056 (Dh3,876) a troy ounce over the week, while silver dropped 7.2 per cent to $15 a troy ounce.
James Steel, precious metals analyst at HSBC, said sovereign risk developments would to wield an influence over gold but their impact was ambiguous.
Although rising tensions in the euro zone should theoretically have boosted gold, Steel said: "In reality, the rise in sovereign risk has weighed heavily on gold, principally because it triggered an increase in risk aversion, which has sent investors into a competing asset, the dollar."
Gold exchange-traded funds saw outflows last week, but traders said the main selling pressure had come from hedge funds closing long positions (bets on prices rising) in the futures market.
Market talk that Greece or Portugal might be prepared to sell some of their gold reserves — a substantial portion of total reserves for both countries — was played down by analysts as unlikely.
One senior dealer said hedge funds would view a gold sale by Greece or Portugal as "a last desperate throw of the dice" that would simply encourage a renewed assault in the sovereign CDS market. US crude oil prices struggled to hold above $70 a barrel.
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