Gold Set for Biggest Weekly Loss in Two Years

By Phoebe Sedgman - Sep 16, 2011 1:49 PM GMT+0700

Gold was set for the biggest weekly loss in more than two years after the European Central Bank and international policy makers coordinated to lend dollars to euro- area financial institutions, curbing haven demand.

Bullion for immediate delivery fell as much as 1.5 percent to $1,762.68 an ounce, the lowest level since Aug. 26, and was at $1,770.65 at 4:23 p.m. in Melbourne. The metal has tumbled 4.6 percent this week, the worst decline since the week to Feb. 27, 2009. December-delivery gold fell 0.6 percent to $1,770.90.

The ECB said it coordinated with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank to extend three-month loans to euro-area banks in an effort to ensure they have enough cash for the rest of the year. The leaders of France and Germany confirmed this week they will support Greece’s continued participation in the shared currency.

“We are starting to see mechanisms put into place to try and contain what’s happening,” said David Lennox, a resource analyst at Fat Prophets in Sydney. “What we’re starting to see is some of the safe-haven fear factor” eroding, Lennox said.

Bullion is in the 11th year of a bull market, surging 24 percent this year as concern the global sovereign-debt crisis was worsening spurred demand for a haven. The metal reached a record $1,921.15 on Sept. 6.

Dollar Funding

The central banks acted after dollar funding dried up for European banks in general, and French lenders in particular, amid concern Greece was headed for a default. Credit Agricole SA (ACA) and Societe Generale SA had their long-term credit ratings cut one level this week by Moody’s Investors Service, which cited their reliance on short-term funding and Greek exposure.

ECB President Jean-Claude Trichet pressed euro-area governments to take decisive action to halt the debt crisis, after the ECB bought them more time by offering the emergency lifeline to lenders. Trichet said finance ministers meeting in Wroclaw, Poland, today need to show the same “unity of purpose” as central banks did in providing the extra dollars.

“They’re only really geared to put out spot fires and play brinkmanship rather than to deliver a killer package that will actually resolve all their issues,” Tom Price, an analyst at UBS AG, said by phone from Sydney. “In that environment, the problem drags on for years, not months, and it’s a great environment for gold.”

Gold exchange-traded-product holdings declined 0.2 percent to 2,145.2 metric tons yesterday, data compiled by Bloomberg show. Assets reached a record 2,216.8 tons on Aug. 8.

Silver for immediate delivery fell 0.8 percent to $39.5475 an ounce, set for a 4.6 percent decline this week.

Spot platinum dropped as much as 1 percent to $1,768.22 an ounce, the lowest level since Aug. 11, before trading at $1,781.93. Palladium was little changed at $725.25 an ounce.

To contact the reporter for this story: Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net