LONDON: Gold fell Friday on a strong dollar as a disappointing Italian debt auction further heightened concerns over the Europe’s ongoing debt crisis after a fruitless meeting of eurozone leaders the previous day.
Global holdings of metal in exchange-traded funds hit a record high, but strong demand was not enough to support the price of bullion, which is set for its second weekly fall.
The euro slipped to a seven-week low against the dollar after a short-term debt auction sent yields on Italian debt soaring, with two-year Italian bond yields reaching a euro-era high of above 8 percent, despite the European Central Bank’s presence in the market.
Talks by the heads of Germany, France and Italy Thursday were overshadowed by German Chancellor Angela Merkel’s determined opposition to a joint eurozone bond and a bigger role for the European Central Bank to deal with the crisis.
Demand from key consumers such as India was suppressed by the strength of the dollar, which pushed the price of gold in rupees close to all-time highs, thereby reducing a major source of support for the price.
“The main thing here is the dollar strength we’ve been seeing but also combined with the deleveraging that’s continuing to take place where funds are reducing exposure across the board, that’s also impacting gold,” Ole Hansen, senior manager at Saxo Bank, said.
“We’re getting close to a situation where the dollar seems to be a little bit overstretched on the upside and we could see a correction ... Whether that will then be enough to drive gold back above $1,710, which seems to be the line in the sand now, obviously remains to be seen.”
Further evidence of central bank demand for gold, together with a rise in investment in bullion-backed exchange-traded funds to a record high this week highlighted the ongoing desire for bullion against a backdrop of uncertainty.
Spot gold was last indicated at $1,689.10 an ounce at 1438 GMT, down 0.3 percent on the day, having recovered from a session low of $1,671.59.
Global holdings of gold in ETFs, one gauge of investment demand, have risen by more than 300,000 ounces this week to hit an all-time high of 69.978 million ounces, following hefty inflows into large U.S. funds such as the SPDR gold Trust, the world’s largest, and COMEX gold Trust.
Central banks bought nearly 26 tons of gold in October, following purchases from Russia, Mexico, Belarus and Colombia, among others, bringing total official purchases to 230.25 tons this year, according to the International Monetary Fund.
“The official sector continued to add to gold reserves in October, with a net purchase of 21 tons, according to wire reports citing IMF data. This brings our year-to-date tally to 356 tons, from 335 tons at end-September,” wrote UBS strategist Edel Tully, in a note. “Given gold’s much more attractive levels in October, we would not be surprised if a similar trend of significantly more buying than is reflected by IMF data actually occurred during the month.”
China and India are widely believed to be prime candidates for adding to their gold holdings, given the size of their foreign exchange reserves.
Silver fell 0.6 percent on the day to trade at $31.58 an ounce. The silver price, which often moves in tandem with gold, is set for a near-9 percent fall in November.
The gold/silver ratio has risen for four weeks in a row to 53.93, its highest since early October, indicating gold’s outperformance relative to that of silver.
Platinum was down 0.08 percent on the day at $1537.00 an ounce, while palladium fell 0.5 percent to $571.47.