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Reuters: Gold flat as safe haven fades on Wall St Rally

By Frank Tang
NEW YORK | Mon Aug 2, 2010 4:01pm EDT
NEW YORK (Reuters) – Gold was largely flat on Monday after an initial rally fizzled, as solid gains in equity markets driven by strong economic sentiment took a toll on the metal’s safe-haven appeal.
Silver and platinum group metals rose sharply on better industrial demand expectations as strong corporate earnings from European banks fueled Dow’s more than 200-point gains.
In early sessions, gold rose toward $1,200 an ounce, tracking the stronger performance of crude oil and other commodities. However, the metal later turned flat with a lack of follow-through support.
Michael Daly, gold specialist at Chicago-based futures broker PFGBest, said selling by short-term traders more than offset underlying physical demand in earlier trade. He also cited lack of trading interest ahead of Friday’s July nonfarm payroll data.
“Any type of nervousness and any type of feeling of lost momentum is prompting investors to take profits,” Daly said.
In recent weeks, gold prices were pressured as a flight to quality faded on signs that an European sovereign debt crisis would not spread. Gold lost about 5 percent in July and was among the top percentage losers in commodities.
Spot gold rose as high as $1,190.40 an ounce and was last at $1,182.25 an ounce at 3:27 p.m. EDT, against $1,181.50 late in New York on Friday. U.S. gold futures for December delivery settled up $1.50 at $1,185.40.
Gold failed to extend initial gains as U.S. stocks neared their best close in 10 weeks on Monday, and as crude oil rose above $80 a barrel on a weaker U.S. dollar and positive economic sentiment. .N <O/R>
Adam Sarhan, CEO of New York-based Sarhan Capital, said that gold has traced out a new downward trendline on charts, and a new technical buy signal will be triggered if gold breaks out above that important level.
Last week, gold closed just above a two-year bullish trendline after analysts said the metal was at risk of falling breaking below that critical chart support.
Simon Weeks, head of precious metals at the Bank of Nova Scotia, said gold in early sessions had risen above the 100-day moving average at $1,183 an ounce on the back of currency moves and rising oil prices.
However, he added gold remained vulnerable to losses, especially if equity markets continued to climb. “People will liquidate safe havens and put risk on,” he said.
Gold managed to arrest a slide that last week took it to a three-month low of $1,156.90 an ounce and then turn higher in its best run since late May.
Investment in gold has ebbed recently, however, as assets seen as higher risk such as stocks have firmed.
The world’s largest bullion exchange-traded fund, the SPDR Gold Trust, reported its biggest outflow in a year last month, with holdings down more than 38 metric tons in July to 1,282.3 metric tons. <GOL/SPDR>
Despite the Wall Street rally, fears the U.S. recovery is faltering drove the dollar to a three-month low against a basket of currencies, while the euro neared $1.32 for the first time since early May. <FRX/>
Lower prices, meanwhile, encouraged higher gold demand from key bullion-consuming centers China, India and the Middle East.
The World Gold Council said the International Monetary Fund sold 17.4 metric tons of gold in June as part of a planned program of bullion sales. That leaves 120.2 metric tons of gold still to be sold under the program.
Silver was up by over 2 percent at $18.36 an ounce versus $17.96, making this its strongest one-day performance since early June, while its ratio to gold — or how many ounces of silver are needed to buy an ounce of gold — hit its lowest since mid-May at 65.0.
Platinum was at $1,595.50 an ounce against $1,566.55, while palladium was at $509.50 against $491, having hit its highest since mid-May earlier in the day.
(Additional reporting by Jan Harvey in London; Editing by Sofina Mirza-Reid)
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