Gold slides more than 2 percent as dollar rises

Mon Mar 9, 2009 1:00pm EDT
By Jan Harvey

LONDON (Reuters) - Gold prices slipped more than 2 percent on Monday after the dollar rose and data showed a small fall in holdings of exchange traded funds.

Spot gold fell to a low of $913.53 an ounce and was at $916.60/917.60 an ounce at 1629 GMT from $939.60 late in New York on Friday.

"Right now the dollar is a little bit stronger and equity markets (generally) are a bit stronger as well so we don't see much inflows into gold exchange traded funds (ETFs)," said Commerzbank analyst Eugen Weinberg.

The world's largest gold-backed exchange traded fund (ETF) recorded its first decline since January 8. Its holdings dipped 0.3 tonnes to 1,028.99 tonnes as of March 8.

UBS analyst John Reade said the total gold holdings of the nine major ETFs the bank follows fell to 48.30 million ounces on March 6 from a revised total of 48.40 million ounces previously.

The dollar gained across the board as global recession fears and banking sector concerns weighed on world stock markets, spurring safe-haven demand for the greenback.

A higher U.S. currency makes metals priced in dollars more expensive for holders of other currencies. Gold is often also used as an alternative when the dollar falls out of favor.

Earlier a rise in U.S. stocks also weighed on gold, which is used a hedge against financial market instability. .N

SOLID ETF DEMAND

Equity weakness broadly supported gold toward the end of last week, although the precious metal was caught up in a stocks sell-off last Monday as investors sought liquidity.

Demand for the precious metal from ETFs, which issue securities backed by physical stocks of gold, was a major price driver earlier in the year. Taders said expected these inflows to resume as uncertainty grows.

"I think that there will be enough worrying news in the first half of 2009 for ETF demand to remain solid," said David Thurtell, an analyst at Citigroup.

Holdings of Julius Baer's (BAER.VX) gold-backed exchange traded fund rose 109,000 ounces or 18 percent last week, the bank said in a weekly statement on Monday.

Demand for gold from jewelry buyers in traditionally strong markets such as India and China remained weak, however.

Traders said scrap sales also put pressure on premiums for gold bars.