Gold price drops on equities strength, Greek deal hopes
New York (Jun 22) Gold fell more than 1 percent on Monday as global equities jumped on possible signs of progress in Greek debt talks, which curbed safe-haven demand for the metal.
Spot gold fell as much as 1.4 percent to a session low of $1,183.75 an ounce and was down 1.3 percent at $1,184.10 an ounce, well below its highest level since May 26 at $1,205.50 hit last week after a dovish Federal Reserve message on the timing of a U.S. interest rate rise.
U.S. gold futures for August delivery were down $19.40 at $1,182.50 an ounce.
Gold is typically regarded as a good bet in times of financial and economic uncertainty, but traders have seen modest demand over the past few days from investors concerned about the Greek debt crisis.
"There's always that underlying feeling that a deal will be done ... but if there was a default, that would be when gold would likely rise to its traditional role as a hedge against a worst-case scenario," ETF Securities analyst Martin Arnold said.
"Greeks themselves though are more likely to stick with euros as a currency hedge."
Eurogroup Chairman Jeroen Dijsselbloem said proposals from Greece were positive and could be the basis of an agreement later this week.
Athens needs fresh funds to avoid defaulting on a $1.8 billion debt repayment to the International Monetary Fund on June 30.
The dollar rose 0.02 percent versus a basket of leading currencies, while European equities climbed 2 percent, reducing investors' interest for assets perceived as safe such as gold and bonds.
Hedge funds and money managers lowered net long positions in gold and slashed bullish bets on silver to the lowest level in seven months in the week ended June 16.
The positioning reflects the stance of investors before a Federal Reserve meeting last week, when policymakers said a rate increase would be appropriate only after further improvement in the labor market and with greater confidence that inflation would rise. Prices rose following those comments.
Non-interest-paying gold has benefited from record low interest rates following the 2007-2009 financial crisis. Higher rates would increase the opportunity cost of holding the metal.
"(Fed Chair Janet) Yellen's comments including the need for decisive evidence, as well as the heightened uncertainty surrounding Greece, have limited the downside risk for gold in the absence of physical demand," Barclays said in a note.
The absence of top consumer China, which is shut for a public holiday, also hurt gold, traders said.
Market players were also monitoring gold sector wage talks, that were due to start on Monday.
Platinum fell to a fresh six-year low of $1,057.75 an ounce. Silver was down 0.1 percent at $16.06 an ounce, while palladium fell to a 16-month low of $696 an ounce.