PRECIOUS METALS : Spot Gold Down; Seen Treading Water This Week
06/12/2012| 06:08am US/Eastern
--Spot gold lower as Spain enthusiasm fades
--Seen rangebound as investors await Greek election over the weekend, Federal Reserve meeting next week
--A potential third round of U.S. quantitative easing seen as major test for gold
By Francesca Freeman
Spot gold is slightly lower in Europe Tuesday, treading water alongside equities and other commodities as optimism over Spain's bailout continues to fade.
At 0927 GMT, spot gold was 0.3% lower at $1,590.60 a troy ounce.
Initial enthusiasm for Spain's agreed bank bailout has proved short-lived, with investors worrying that Spain's inability to fund its own bank bailout suggests a wider funding problem that might lead to a bailout of Spain itself. In addition, the issue of its rising debt-to-gross domestic product ratio is also weighing on sentiment.
"The initial euphoria Sunday night over the "Spanish rescue" has abated...and the markets are back in wait and see mode," said David Govett of Marex Spectron.
Although gold is traditionally viewed as a hedge against economic insecurity, it has been displaying a usually-close correlation to risk-related assets of late as investors have sought solace in alternative 'safe havens', such as the dollar.
Gold is expected to remain relatively rangebound this week as investors tread with caution ahead of the weekend's election in Greece and next week's U.S. Federal Reserve's policy meeting.
Gold is currently trading within the confines of its major support zone at $1,532.20/oz-$1,522.48/oz on the one hand and its June peak at $1,641/oz on the other hand, said Commerzbank analyst Axel Rudolph.
"It is likely that the precious metal will continue to stay within these confines in the course of this week," he said.
Further ahead, a potential third round of U.S quantitative easing could spark a new gold uptrend and see the metal take out last year's all-time high at $1,920.94/oz, said Swedish Bank SEB.
However, a failure by gold to rally under such conditions should be taken as a sign that the current gold bull market has ended, said the bank.
"In our main scenario we still expect gold to take out previous highs in 2012 though we think that there is a risk that gold has already peaked," it said.
Elsewhere in the precious metal complex, spot silver was down 0.03% at $28.520/oz, spot platinum was 0.8% lower at $1,430.50/oz and spot palladium was 0.5% lower at $615.75/oz.
Write to Francesca Freeman at firstname.lastname@example.org