Gold prices expected to fall as it loses hedge allure

Gold may fall in New York on speculation Europe's debt accord will curb demand for the precious metal as a hedge against losses in other markets. Stocks climbed to an eight-week high and the euro strengthened as the accord expands the European bailout fund by four or five times, to about €1 trillion (Dh5.1 trillion). Gold climbed 6.9 per cent in the past four sessions as Europe's banks clashed with politicians during debt talks. "Gold should trade lower if market participants agree that the €1 trillion bazooka is enough to manage the Euro-area crisis," said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. "I wouldn't expect gold to fall that much because the debt plan still needs to be tested." Gold for December delivery fell 0.3 pern cent to $1,719 (Dh6,313) an ounce by 8.35am on the Comex in New York. The metal for immediate delivery dropped 0.3 per cent to $1,719.07 an ounce. Taking a haircut The most important outcome of the talks was that bondholders agreed to take 50 per cent losses on Greek debt, most likely avoiding a "credit event," Edel Tully, an analyst at UBS AG in London, said Thursday. A credit event would have triggered payments on $3.7 billion of debt-insurance contracts. Holdings in exchange-traded funds backed by the metal were little changed at 2,231.8 tonnes yesterday after rising 0.5 per cent the day before, data compiled by Bloomberg show. Silver for December delivery jumped 0.9 per cent to $33.615 an ounce, palladium futures gained 2.8 per cent to $664.15 an ounce and platinum for January delivery increased 0.8 per cent to $1,610 an ounce. Investor confidence was also bolstered by data from the United States showing signs of economic growth. Solid momentum US durable goods data on Wednesday indicated the economy was heading into the fourth quarter with solid momentum, showing that demand for a range of long-lasting US-made goods rose at the fastest pace in six months in September. And in big commodity consumer China, there are expectations the government may loosen a tight liquidity policy in the fourth quarter as growth slows, while hopes are running high that inflation has peaked. Global stock prices and the euro rose on news of the deal, and the dollar fell against a basket of currencies. Main driver The metal is also being supported by labour disputes that led Freeport MacMoRan Copper & Gold to declare force majeure at its Grasberg mine on Wednesday. "Encouraging headlines on an agreement on measures to find a solution to the Eurozone sovereign debt crisis seems to be the main driver," said Citigroup analyst David Thurtell. Grains also rose, with US wheat up 1.7 per cent yesterday. Corn firmed following its biggest drop in a month. Commodities: Metals lead gainers Commodities rose yesterday, led by metals, after a deal by European leaders to tackle the euro zone debt crisis enticed investors back into riskier assets. Copper rose on the London Metal Exchange gained almost 5 per cent, hitting its highest level in more than a month. "We've seen an upturn in risk appetite across the board; the equity markets have moved higher, the dollar's weakened and that's tended to take a lot of commodities higher," Standard Chartered analyst Daniel Smith said. Euro zone leaders struck a deal with private banks and insurers for them to accept a loss on their Greek government bonds under a plan to lower Greece's debt burden and try to contain the two-year-old euro zone crisis. The agreement was reached after more than eight hours of hard-nosed negotiations involving bankers, heads of state, central bankers and the International Monetary Fund. It aims to draw a line under spiraling debt problems that have threatened to unravel the European single currency project. "This morning is all about risk-on," said RBS commodities strategist Nikos Kavalis. "Today the (gold) price has come under some pressure but has been supported by good buying from private banks."