By: Tom Jennemann

New York 23/07/2012 - Gold futures buckled in the US on Monday after yet another flare-up in the Spanish debt crisis, which prompted traders and financial investors to covet the perceived safety of the US dollar at the expense of risk assets and even the precious metals complex.

Gold for August delivery on the Comex division of the New York Mercantile Exchange was last down $14.30 at $1,568.50 per ounce. Trade has ranged from $1,562.00 to $1,582.40.

The yield on 10-year Spanish government bonds briefly spiked to 7.5 percent on Monday before retreating; nevertheless, the markets now fear that the struggling country could soon be locked out of public debt markets, forcing an emergency Greek-style bailout.

But since Spain is the eurozone's fourth-largest economy, putting together a suitable and comprehensive rescue package would be a daunting, if not impossible, task.

“With the euro touching two-year lows against the dollar, precious metals have started the week on the backfoot,” Standard Bank said in a note.” Heightened worries over the eurozone have been fuelled by record-high Spanish bond yields, reports that the IMF is sceptical on Greece’s future and the speculation of a continued decline in eurozone PMI readings out tomorrow.”

“With little in the way of data flow [today], we expect precious metals to remain under pressure, although there is some support coming from the gold physical market,” it added.

The decidedly negative news flow out of Europe is likely to impede economic recovery and future growth rates even if additional stimulus were implemented, RBC Capital Markets analyst George Gero said.

“Therefore the path of least resistance [for gold] is down. Funds sell whenever uncertainty rears its head and cash becomes king,” said Gero, who noted that the dollar was last about two thirds of a cent stronger at 1.2087 against the euro.

In wider markets, Germany's DAX and France's CAC-40 were down 3.11 percent and 2.59 percent lower respectively. In the US, the Dow Jones industrial average opened down 1.70 percent and the S&P 500 was a similar 1.72 percent lower.

As for industrial commodities, light sweet crude (WTI) oil futures for September delivery on Nymex were down $3.55 at $88.28 per barrel and the most actively traded Comex copper contract was at $3.349 per pound, down 9.9 cents.

In gold-specific news, holdings in gold physically backed exchange-traded funds (ETFs) fell 13.7 tonnes last week - the biggest single weekly decline since March.

“The psychology is changing from bullish to bearish and so we have no interest in owning gold in dollar terms and we must admit that that our urge to hold gold in euros could change rather quickly,” Dennis Gartman, an economist and editor of the Gartman Letter, said in a note.

“For now; however, with gold/euro at or near yearly highs we will sit tight but we are 'antsy'. We are nervous - very,” Gartman added.

Non-commercial and non-reportable traders combined held a net long position in Comex gold of 152,758 contracts, increase of 5,520, for the week ending July 17, the Commodity Futures Trading Commission (CFTC) reported.

“The slight buying trend could be considered moderately supportive over the short-term but that is likely overwhelmed by the pressure from outside markets,” CME Group said in a market commentary.

The Comex gold net speculative length climbed last week by a modest 6.9 tonnes to 388.8 tonnes. This was the result of an 18.7-tonne decrease in speculative shorts while there was also an 11.7-tonne decrease in longs.

“The drop in speculative shorts is encouraging, although at 163.8 tonnes they are still uncomfortably high. Overall, positioning in gold remains weak and we are sceptical about the sustainability of any gold rallies over the short term,” Standard Bank said.

“The modest nature of this increase indicates the market’s hesitation to commit ahead of [Federal Reserve chairman Ben] Bernanke’s reports to Congress last week,” it added. “Participants seemed to be looking to Bernanke to provide a strong commitment to further quantitative easing. As we had expected, he did not, which will most likely see a deterioration in this week’s net speculative length.”

As for the other precious metals, Comex silver for September delivery was last down 44.2 cents at $26.860 per ounce. Trade has ranged from $26.680 to $27.240.

Platinum futures for October delivery on Nymex were down $18.60 at $1,395.90 per ounce, while the September palladium contract was at $566.40, down $9.70.


(Editing by Mark Shaw)