London: Gold was set for its biggest one-day fall in three months on Monday, under pressure from a robust dollar, which in turn choked off demand from consumers in key regions such as India.
Last week’s summit of European Union (EU) leaders yielded a historic agreement on beefing up fiscal discipline in the 27-member bloc, but fell short of market expectations for a more drastic solution to the crisis.
This lack of confidence in Europe pushed investors into the relative safety of the dollar, rather than gold, which has fallen by about 5% in the last week alone.
A stronger dollar often encourages non-US holders of gold to sell the metal to lock in a higher profit in their own currencies and in India, the world’s largest consumer of bullion, this has kept jewellers and other consumers at bay.
Spot gold was last quoted down nearly 3% at $1,659.66 an ounce by 1508 GMT, having dropped by as much as 2.8% earlier to a low of $1,662.39, its lowest in three weeks, after breaking through $1,680, a major support line.
Afshin Nabavi, head of trading at MKS Finance, said the run-up to the end of the year was encouraging some selling of gold to raise dollars.
“The dollar is strengthening and the euro is losing value and...because of what is happening in India with the (weaker) rupee, the demand for physical gold is not as it should be,” he said.
“Now we have broken the $1,675 region, so now the next really important support...is $1,650, that is where it held last time. Until the year-end, we are probably going to be very choppy and probably trading on the lower side, rather than the higher,” Nabavi added.
There is continued evidence of investor demand for gold elsewhere, as highlighted by the rise in speculative holdings of gold futures, which last week rose by half a million ounces and by the swell in holdings of gold in exchange-traded fund products to record highs last week.
In the last month, holdings at the largest gold-backed exchange-traded products have risen by nearly 1.2 million ounces, largely in response to concern over the slow progress in solving the euro zone crisis.
EU leaders agreed to lend up to €200 billion to the International Monetary Fund to help it aid euro zone strugglers, and to bring forward the permanent rescue fund European Stability Mechanism by a year to mid-2012.
Those steps, together with the leveraged European Financial Stability Facility—the existing bailout fund—are intended to boost help for troubled euro zone countries, such as Italy and Spain, the bloc’s third and fourth largest economies, respectively, as they muddle through their refinancing crunches.
Prices of platinum group metals also weakened. Spot palladium fell 3.6% to $658.72 an ounce, while platinum fell 1.9% to $1,483.49 an ounce.
Silver fell 3.4% to $31.12 an ounce. So far this month, the price has fallen by more than 4%, set for a second consecutive monthly decline.
Rujun Shen in Singapore contributed to this story.