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Jan 26, 2010
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Gold slips towards $1,090/oz as dollar firms

By
Reuters
Published
Jan 26, 2010

By Jan Harvey

LONDON, Jan 26 (Reuters) - Gold prices slipped in Europe on Tuesday 26 January as China's implementation of a clampdown on lending lifted the dollar versus the euro, undermining bullion's appeal as an alternative asset.



Higher-yielding and commodity-related currencies are sensitive to any hints that China may be putting the brakes on its economy.

Spot gold XAU= was bid at $1,090.85 an ounce at 1020 GMT, against $1,097.95 late in New York on Monday 25 January. U.S. gold futures for February delivery GCG0 on the COMEX division of the New York Mercantile Exchange fell $5.00 to $1,090.70 an ounce.

"It looks as though gold has found some support here, but I wouldn't be surprised to see more weakness," said Standard Chartered analyst Daniel Smith.

"A lot will be determined by the outlook for the dollar, so clearly the U.S. GDP number on Friday (29 January) will be very important for that," he added. "If it is stronger than expected, the dollar will strengthen and gold will suffer."

The outcome of the Federal Reserve's meeting on interest rates, due to conclude on Thursday 28 January, will also be key for the U.S. currency, he said. The Fed is not expected to indicate a benchmark rate hike is imminent.

Gold prices fell along with the euro on Tuesday 26 January as risk aversion increased, while equities also slipped. China's central bank told banks that need to raise reserve ratios to implement the change on Tuesday 26 January, banking sources said.

Asian stocks slid as fears mounted that China could impose further measures to curb loan growth, while European shares fell for a fifth day. Worries over President Barack Obama's plans to rein in U.S. bank lending also continued to weigh.

COMMODITIES PRESSURED

Gold might typically be expected to benefit at times of rising risk aversion as investors buy the metal as a haven, as happened a year ago while the financial crisis raged.

However, if risk aversion is rising but still manageable, the benefits to the dollar -- strength in which weighs on gold -- generally put gold prices under pressure.

"(Gold's) risk-averse qualities were hardly noticeable during the latest sell-off in equities, with bullion trading against the dollar as anything else in your average commodity basket," said VTB Capital analyst Andrey Kryuchenkov in a note.

Among other commodities, oil fell more than 1 percent, and industrial metals like copper and aluminium also fell. The asset class is suffering from fears tighter Chinese monetary policy may curb investment flows into commodities.

On the supply side, the chief executive of Harmony Gold Mining (HARJ.J), the world's fifth-largest gold producer, sees spot gold prices flat for the next 12 months.

He added the company was reviewing further operations based on the gold price versus costs after closing four shafts, and the company's electricity bill could triple in four years if power utility Eskom's tariff request is granted.

Silver XAG= was at $16.82 an ounce versus $17.12, tracking losses in gold. Platinum XPT= was at $1,516 an ounce versus $1,546.50, and palladium XPD= was at $426.50 an ounce against $441.

Buyers are cashing in gains in palladium, the best performer of the precious metals so far this year, analysts said. However, "investors may view the correction as a further dip buying opportunity", said TheBullionDesk.com analyst James Moore. (Editing by Sue Thomas)

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