Gold eased in Europe on Wednesday as the dollar rose broadly, with the euro coming under selling pressure as the ratings agency Moody’s put Spain’s AA1 rating on review for a possible downgrade.
Underlying demand for the metal as a haven from risk was, however, preventing a larger correction, analysts said.
Spot gold was bid at $1 393,05 an ounce at 1258 GMT, against $1 395,61 late in New York on Tuesday. US gold futures for February delivery fell $10,50 an ounce to $1 393,80.
“Clearly the downside is well supported by ongoing uncertainties about debt, with Moody’s (reviewing) some European ratings outlooks, on Spain and Belgium and so on,” said Crédit Agricole analyst Robin Bhar.
“In the short term that will be seen as a negative because it does harm the euro, but in the long term it has got to be a supportive factor, particularly if those concerns about fiscal deficits focus on the United States.”
Moody’s said on Wednesday it had put Spain on review for a possible downgrade because of its high funding needs and doubts about its banking sector and regional finances. It cut its outlook for Belgian debt to negative on Tuesday.
This pressured the euro down 0,2% against the dollar, 0,1% versus the Japanese yen and to record lows against the Swiss franc.
The Moody’s news fuelled concern over the scale of some euro zone countries’ debt, after Greece and Ireland struggled with their finances earlier this year. This helped drive gold to a record $1 430,95 an ounce earlier this month.
Some budget experts also fear the United States will face a Greece-style debt crisis over the coming decade if it does not bring down budget deficits, which hit 9,9% of GDP in fiscal 2009.
“The unease generated by ever-growing budget deficits is negative for the US dollar and supportive of gold,” HSBC said in a note. “A lack of confidence in the government’s willingness to cut the deficit is an important component in the gold rally.”
Gold buying in main consumer India slowed on Wednesday as the weak rupee kept prices of the precious metal relatively high in local terms.
Meanwhile the world’s largest gold exchange-traded fund, the SPDR Gold Trust, said its holdings fell by just over 3 tonnes on Tuesday.
However, the iShares Silver Trust, the world’s largest silver-backed ETF, said its holdings hit a record high at 10 964,14 tonnes on December 14.
“Given our positive outlook for gold we expect silver to enjoy continued investor demand in 2011,” UBS said in a note. “But silver is very volatile, and this will deter some investors. We see silver averaging $33,00 in 2011.”