held near its highest in two weeks on a softer U.S. dollar

against the euro and growing fears that Greece could end
u

 FUNDAMENTALS	

strongest since June 9. Gold is still below a lifetime high
around $1,575 touched in early May.  	

below a record at $49.51 an ounce in April.	

pressure on Athens to get its ragged finances in order.
 	

investors in Japan. 	

 MARKET NEWS	

Federal Open Market Committee meeting this week. 	

U.S. dollar weakened.   	

 DATA EVENTS (GMT)	

 0900 Germany ZEW economic sentiment  Jun 2011   	

 1145 U.S. ICSC chain stores yy       Weekly     	

 1400 U.S.Exist. home sales % chg     May        	

 1400 U.S. Existing home sales        May        	

 * Gold to rise to $1,561 an ounce -technicals
 

 * Coming Up: Euro zone current account data for April  0800 GMT

 By Lewa Pardomuan	

 SINGAPORE, June 20 (Reuters) - Gold shed early gains on
Monday but was still supported by debt crisis woes in Europe
after the region's ministers delayed a decision on emergency
loans to Greece, while investors awaited the outcome of a U.S.
central bank meeting that could squeeze the dollar. 	

 Euro zone finance ministers postponed to July a final
decision on extending a further 12 billion euros ($17 billion)
in emergency loans to Greece, saying Athens would first have to
introduce harsh austerity measures. 	

 Spot gold lost $1.44 an ounce to $1,536.96 by 0547
GMT, having risen above $1,541 on Friday -- its biggest one-day
gain since May. Gold is still below a lifetime high around
$1,575 touched in early May.  	

 Investors await the Fed's Open Market Committee's
announcement on interest rates on June 22.   	

 " Investors will be trying to see how far or how high the bar
for the next round of quantitative easing will be. If this bar
is actually lowered, then I think it will be beneficial for
gold,"  said Ong Yi Ling, investment analyst at Phillip Futures.	

 " If it is high, then I think gold will still remain in its
current range bounds that we are seeing. I don't think they will
do QE3 now." 

of June of the Fed's quantitative easing, a cheap-money policy
credited with boosting stocks but blamed for sky-high
commodities prices and a weak dollar.  	

 Gold priced in sterling extended gains to hit a
record at 953.41 pounds on Monday, tracking gains in spot gold. 	

 The euro gave up some of its gains of late last week after
euro zone finance ministers said they expected to pay the 
further 12 billion euros in emergency loans to Greece by next
month. 	

 But the ministers also agreed that they would seek a
voluntary rollover of Greek debt by private bondholders to
finance a substantial part of Greek funding needs in coming
years. 	

 Recent gains in gold were driven by debt problems in Europe,
inflation fears in China following strong economic data and
worries about a U.S. economic slowdown.	

 " I think to some extent it was expected they won't be able
to finalise it so soon because it was a pre-condition that
Athens has to introduce all these austerity measures and show a
plan of that sustainability before they get their bailout,"  said
Ong of Phillip Futures.	

 " I think for gold, I would still look at resistance at about
the $1,550 to $1,555 level."  	

 Silver hardly moved at $35.64 an ounce, below a
record at $49.51 an ounce in April. Platinum and
palladium gained on firmer equities. 	

 Tokyo stocks on Monday came off a three-month low hit last
week with power companies leading gains after Trade Minister
Banri Kaieda on Saturday called on local governments to give the
green light to restarting nuclear reactors.  	

 " I think the U.S. will maintain the interest rates at low
levels for a little while after the quantitative easing
finishes. I can't tell you whether it's going to be bullish or
not for gold,"  said a physical dealer in Hong Kong.	

 " But I guess gold will be stable until the problem in Greece
is solved. There are so many problems to be solved."  	

 The International Monetary Fund cut its forecast for U.S.
economic growth on Friday and warned Washington and debt-ridden
European countries that they are " playing with fire"  unless they
take immediate steps to reduce their budget deficits.
 	

 Money managers cut their bullish bets in COMEX gold futures
and options after raising them in the past three weeks, as
bullion prices fell during the period, futures regulator
Commodity Futures Trading Commission data showed  

   

   

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Gold Margins To Be Lowered, FOMC Rate Decision May Curb Demands

Fundamental Forecast for Gold:  Neutral

 

Gold pared the decline from earlier this month, with the bullion advancing to $1542.05/oz,

and prices for the precious metal may continue to push higher in the week ahead as the CME

Group plans to lower margin requirements following Monday’s close. Indeed, heightening fears

surrounding the European sovereign debt crisis sparked a flight to safety, which spurred demands

for gold, and the mounting risk for a Greek default should help to prop up gold prices as the EU

struggles to restore investor confidence.

However, the Commitments of Traders report from the U.S. Commodity Futures Trading

Commission released for the week ending June 14 certainly tells a different story given a

4 percent drop in net long positions for gold futures. The data suggests market participants

are scaling back bets for higher prices, although speculative longs outnumber shorts by 191,695

contracts, and the bullion may struggle to hold its ground over the following week as the Federal

Reserve is widely expected to unwind the additional $600B in quantitative easing. As the central

bank plans to withdraw liquidity, there certainly appears to a major shift in risk-taking behavior,

and the recent strength in the U.S. dollar could gather pace as it benefits from safe-haven flows.

  As the greenback remains the global trade currency, an appreciation in the USD could

translate  into lower prices for gold given the historically negative correlation between the two

asset classes. In turn, the rebound in the bullion could be short-lived should we see increased

demands for the U.S. dollar, and the greenback may appreciate further in the second-half of 2011

if the Fed shows an increased willingness to start normalizing monetary policy later this year. - DS

 

 

 

 

 

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The month of May proved to be a tumultuous one for the gold prices.

The first two weeks were marred by the Federal Reserve’s late-April pledge

to allow the second round of quantitative easing (QE2) to expire.

This stoked fears of imminently rising borrowing costs and led investors

to unwind positions financed cheaply through the program to buy a variety

of assets, including gold, sending prices tumbling lower.

Downward momentum was abruptly cut short with the reemergence of the

Euro Zone debt crisis as a headline theme mid-month. With markets suddenly

preoccupied with the prospect of a Greek default and the political wrangling

around a second EU/IMF aid package, gold’s safe-haven credentials drove

demand higher and prices recovered over three-quarters of their previous

decline. Most recently, price action has reflected indecision, with gold treading

water below the $1550/oz level over the past five trading sessions and seemingly

unsure of where it belongs in today’s increasingly polarized marketplace.

Looking ahead, the path of least resistance seems uncertain. On one hand,

the expiration of QE2 is now just around the corner on June 9, hinting that

the un-doing of exposure built around access to cheap US Dollar funding ought to

resume and take gold lower as it did in the first weeks of May. On the other, an acute

downturn in US economic performance – most recently underscored by bitterly disappointing

employment figures – and a parallel breakdown in the S& P 500 argue for a kind of risk

aversion that makes markets worried that the global recovery has run into a wall with

the steady unwinding of monetary and fiscal stimulus. In such a scenario, investors

fearful that “paper” profits accumulated in the post-crisis rally across asset classes

since early 2009 may now evaporate will look to shift capital into an alternative store of

value, making gold an attractive option.

On balance, the re-accumulation of gold ETF holdings over the past three weeks seems

to indicate the latter logic is holding sway, hinting the yellow metal is likely to rise if risk

aversion returns in earnest. With that in mind, it is important to remember that gold is

priced in terms of another go-to safety asset – the US Dollar – whose gains under parallel

circumstances are likely to keep the metal’s upside potential relatively capped. The post-QE2

rise in US yields is likely to encourage this dynamic. After all, gold pays no interest at all, so

holding even very low-yielding Dollars is relatively more attractive assuming the threat of a

catastrophic inflationary debasement of the greenback is of the table (which seems to be the

case with QE over and the economy slowing).

 

//dailyFX