Gold falls for second day as Spain fears dent euro

Wed May 30, 2012 6:52am EDT
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By Amanda Cooper

LONDON (Reuters) - Gold fell for a second day on Wednesday, under the influence of a weaker euro as the euro zone debt crisis engulfed Spain and sent investors scrambling for a safe haven in the form of dollars.

The euro fell sharply against the yen and remained around two-year lows against the dollar as concerns intensified about the solvency of Spanish banks and Madrid's ability to bail out its financial sector.

Spot gold was down 0.5 percent on the day at $1,547.39 an ounce by 6:21 a.m. EDT (1021 GMT). The price has fallen by nearly 7 percent in May, marking its worst monthly performance since December, when it fell by nearly 11 percent.

"As we've seen during other periods of extreme risk aversion, investors go into Treasury bonds, which are yielding record lows, or they stay in cash. It's preservation of capital ... so for the moment, gold is unloved, but I think it means if you are still a bull, you will get better levels at which to express that," Robin Bhar, an analyst at Societe Generale, said.

"We look at the most recent lows around the $1,520 level as a target and possibly below there as this storm continues," he said.

The European Commission will set out its economic strategy for the euro zone on Wednesday, spelling out measures to balance growth with unpopular fiscal consolidation that will be particularly pointed for Spain and Italy.

Spanish borrowing costs remained stubbornly above 6.5 percent, the highest yield for the benchmark 10-year bond in six months, while the cost of insuring five-year Spanish debt against default hit a record high. <GVD/EUR>

Euro zone economic sentiment fell more than expected in May as pessimism among manufacturers and retailers in particular worsened, although consumers became slightly less downbeat about the economy for the year ahead.   Continued...

Gold bars are displayed at a gold jewellery shop in the northern Indian city of Chandigarh May 8, 2012. REUTERS/Ajay Verma