Gold eases as heightened Spain worries boost dollar

Mon Jul 23, 2012 2:49am EDT
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By Rujun Shen

SINGAPORE (Reuters) - Gold eased on Monday under the pressure of a stronger dollar, as worries about the euro zone debt crisis deepened after Spain stoked fears that it might need a sovereign bailout.

Spain's woes, highlighted by two indebted regions seeking financial aid from the central government, drove the euro to a two-year trough against the dollar, which strengthened the greenback and made gold and other commodities priced in the U.S. currency less attractive.

Spain is the euro zone's fourth largest economy and investors are worried it may be forced to follow Greece, Portugal and Ireland, which were thrown lifelines by international lenders after their borrowing costs shot above sustainable levels.

"The euro zone's problems will resurface and keep the euro weak, and the dollar on the strong side," said Dominic Schnider, an analyst at UBS Wealth Management in Singapore.

The dollar has climbed more than 4 percent against a basket of currencies so far this year, weighing on gold that rose just about 1 percent during the same period.

The lack of commitment to further monetary stimulus from the U.S. Federal Reserve has left gold trapped in an increasingly narrow range, as investors await clarification from the next Fed policy meeting at the end of the month.

"There is definitely scope for a big directional move. Since we don't expect QE (quantitative easing) to materialize, there is the risk that prices should go south."

Spot gold lost 0.6 percent to $1,574.29 an ounce by 02.32 a.m. EDT, after posting a 0.3-percent loss last week.   Continued...

Gold Bullion from the American Precious Metals Exchange (APMEX) is seen in this picture taken in New York, September 15, 2011. REUTERS/Mike Segar