Gold hits four-month low, longest losing streak in seven months

Reuters

Commodities tomorrow: Gold hits 4-month low

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By Jan Harvey

LONDON (Reuters) - Gold fell for a fifth session on Monday, its longest losing streak in seven months, as rising stock markets diverted interest from bullion, and ahead of the latest European Central Bank policy meeting and key U.S. data this week.

Prices have fallen sharply after breaking through $1,285 an ounce on Tuesday, the lower limit of a range they had kept to for much of the previous month. They hit a low of $1,240.69 an ounce earlier on Monday, their weakest since late January.

Spot gold was down 0.3 percent at $1,247.20 an ounce at 1355 GMT, while U.S. gold futures GCv1 for August delivery were up $1.40 an ounce at $1,247.40.

U.S. stocks opened higher on Monday, with the Dow and S&P 500 at record levels, while European stock markets benefited from a rebound in Chinese manufacturing data, which helped soothe jitters about its economy.

"(Stocks and gold) are negatively correlated because as the global economic situation stabilises and improves, people have a higher risk appetite and want to enter more risk investments," Natixis analyst Bernard Dahdah said.

"When you see stock markets rallying, you can potentially see people dropping out of gold into equities."

The ECB is tipped to announce a package of policy options after its meeting on Thursday, following heavy hints that monetary policy will be loosened in a variety of ways to support growth.

The following day sees the release of monthly U.S. non-farm payrolls data, a leading barometer of the health of the world's largest economy. Both events will be closely watched by gold traders for their impact on currencies and U.S. monetary policy.

Looser monetary policy, which cuts the opportunity cost of holding non-yielding gold, is generally positive for bullion prices. However, in the ECB's case this will likely be outweighed by the currency impact of a weaker euro, Societe Generale analyst Robin Bhar said.

"A more dovish ECB might be bullish for gold in euros, but people still look at gold in dollars," he said. "If the dollar continues to be bid...it can only apply more pressure on gold."

PHYSICAL DEMAND SOFT

Physical buying failed to pick up as consumers expect gold prices to fall even further. In top buyer China, banks are also adequately stocked from last year's record imports, leaving them to focus on selling existing stocks first.

"On the physical side, the trade remained largely anaemic, with few changes to near flat Shanghai Gold Exchange premiums to (spot prices) last month," VTB Capital said in a note.

"Notably, volumes on the SGE 999 gold contract tumbled to near one-month lows at the end of last week, with little sign of Chinese bargain hunting at current levels."

Key physical markets in Hong Kong and China were shut on Monday for a public holiday.

Other data also showed that hedge funds and money managers cut their bullish bets in U.S. gold futures and options in the latest week to their lowest level in nearly four months, another sign of waning investor interest in the metal amid higher equities.

Among other precious metals, silver was up 0.6 percent at $18.80 an ounce, recovering from Friday's 11-month low at $18.60. Spot platinum was down 0.8 percent at $1,433.50 an ounce, while spot palladium was down 0.2 percent at $831 an ounce.

Platinum group metals continued to take support from a long-running miners' strike in major producer South Africa. The strike, which began on Jan. 23, has hit 40 percent of global platinum production.

(Additional reporting by A. Ananthalakshmi in Singapore; editing by Susan Thomas and David Evans)

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