Gold Prices Retreat on Greek Default Worries

 @MikeObelm.obel@ibtimes.com
on February 06 2012 6:14 AM

Gold prices declined Monday on concerns Greece will -- despite the Eurozone's two years of efforts -- default on its massive sovereign debt, with acute consequences for global economic growth.

Weekend negotiations between Athens and the three groups, the European Union, European Central Bank and International Monetary Fund, that will decide whether to give Greece an urgently needed $170 billion in aid left a number of unresolved issues. Greek leaders were expected to announce Monday whether or not they could meet the groups' demands, which include opening markets and lowering wages.

Meanwhile in the U.S., the shine was coming off Friday's January jobs and unemployment numbers that showed the economy adding 243,000 jobs and the jobless rate falling to 8.3 percent to 8.5 percent. The closely watched Labor Department numbers on the economy's participation rate and weak consumer spending along with the likelihood that warm winter weather helped construction were largely ignored in Friday's post-report stock market rally. Investors want to see several more such monthly reports, but the possibility of a sharp Eurozone downturn dims such a possibility, especially in light of less-than-exciting fourth-quarter and full-year earnings reports coming from U.S. corporations.

The U.S. Jobs report also lowered expectations of more Federal Reserve money printing.

Gold's reversal after Friday's payrolls data was an understandable reaction to the surprise drop in U.S. unemployment and hopes for fresh easing from the Fed dimming, albeit temporarily, UBS analyst Edel Tully said in a note.

While we acknowledge that the bar for (quantitative easing 3) is high and some adjustments to expectations may be in order, we doubt that last Friday's employment data alone is enough to completely reverse the impact of the recent (Federal Open Market Committee) statement and prompt investors to materially scale back hopes for balance sheet expansion.

Such U.S. developments combined with renewed fears that Greece will default to offset some of the so-called risk-on appetite of investors.

Such concerns left global stocks mixed and the euro as well as industrial commodities like crude oil and copper lower -- the net effect of which was gold prices falling.

Safe-haven buyers still exist, they're just far less of a force that they were at the peak of the sovereign debt crisis, Nikos Kavalis, an RBS analyst, said to Reuters. For the time being, we see gold over the next few months appreciating with other commodities.

The yellow metal found some support from physical buyers in Asian who were responding to the price decline with purchases.

Gold for April delivery was off $21.30 to $1,719, while spot gold slipped $10.02 to $1,717.55.

Silver for March delivery declined 43 cents to $33.38 and spot silver fell 33 cents $33.38.

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