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Gold up as eurozone debt worries linger

07 November 2011, 13:45

Singapore - Gold prices gained about 1% on Monday as worries about the details of Greece’s coalition deal and Italy’s rising borrowing costs triggered safe haven interest in bullion.

Greece’s politicians agreed on Sunday to form a unity government to approve a eurozone bailout, but uncertainty remained over who will lead the new Greek government amid bitter political divisions and the unspecified timing of early elections.

Fuelling this gloomy outlook were events in Italy, where Prime Minister Silvio Berlusconi has one day left before a parliament vote on public finance after his government failed to adopt reforms to defuse a dangerous debt crisis.

Italy, the eurozone’s third-biggest economy, poses a far graver risk to the 17-nation currency bloc than Greece. With its borrowing costs soaring and €1.9 trillion in public debt, it is too large to bail out.

“Investors still lack confidence in the situation in Europe,” said a Shanghai-based trader. “The dollar, as well as bonds and gold, will benefit due to their safe haven nature.”

He added that strong buying interest in the Shanghai market also contributed to the rise. The popular Shanghai gold spot deferred contract rose half a percent to ¥361.17 per gram, or $1 769 an ounce. Spot gold jumped 1.1% to $1 772.76, its highest since September 22, before easing to $1 769.60 in early morning trade,according to Thomson Reuters data.

US gold rose to $1 774.7, also its highest in six and a half weeks, before giving up some gains to trade at $1 771.60.

“People are waiting for the situation to play out in Europe,” said Dick Poon, manager of precious metals at Heraeus in Hong Kong. “Right now they are unwilling to put too many bets on either equities or commodities.”

Poon said gold had been pushed higher by some fund buying, albeit on a modest scale. The MF Global bankruptcy and its aftermath also depressed activity in markets, traders said.

Money managers, including hedge funds and other large speculators, raised their bullish bets in gold futures and options in the week to November 1 as the price of bullion surged to its highest in five weeks, above $1 750/oz, data on Friday showed.

Holdings of the SPDR Gold Trust , the world’s biggest gold-backed exchange-traded fund, gained 1.513 tonnes on the day to 1 245.064 tonnes by November 4, the highest in more than a month.

Gold prices have found good support on the downside from physical demand with interest emerging from the festival season in India as well as China, though volumes have slowed, Barclays Capital said in a research note.

The gold flow from Hong Kong to mainland China in September jumped sixfold on the year to a record of 56 896 kg, boosting the total of the first nine months to 201 068 kg, more than double that of a year earlier, the Hong Kong Census and Statistics Department said. 

- Fin24


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