(changes dateline, byline, adds quotes, updates prices)
By Veronica Brown
LONDON, Jan 21 (Reuters) - Gold hit an 11-day low on Monday
as a weaker euro versus the dollar encouraged investors to lock
in profits from last week's run to record highs, but broader
financial market uncertainty was seen limiting losses.
Spot gold <XAU=> stood at $868.60/869.80 per troy ounce by
1156 GMT, compared with $881.90/882.60 in New York quoted late
in New York on Friday. Market volatility was high, due to the
U.S. Martin Luther King Day holiday.
The market is now some 4.5 percent away from the record
highs hit at $914 per ounce last week, but dealers and analysts
said prices could benefit eventually as worries over the
possibility of a U.S. recession intensify.
Global markets were dominated by battered stocks and demand
for safe-haven bonds as investors worried that a troubled U.S.
economy would drag others down with it.
"Commodities opened the year spectacularly, it's only
natural really that we see some profit-taking as the gold market
was very long. The currencies have been the main factor this
morning," analyst James Moore of TheBullionDesk.com said.
"We're seeing a period of consolidation. I don't see this as
a reason for panic, given that there are concerns about the U.S.
economy and the potential for recession plus the fact that
interest rates there are expected to be cut," he added.
Analysts have said that a slide into recession in the United
States could be beneficial for gold in the first instance as
aggressive cutting of interest rates would weaken the dollar --
making dollar-priced gold more attractive as a safer investment.
For Monday, currency fundamentals remained unfavourable,
with the euro down almost 1 percent on the day versus the dollar
<EUR=>.
ETF HOLDINGS FALL
Dealers said that gold's fall from the record highs was
partly driven by investors and funds seeking to cover margin
calls from losses in stock markets due to the recession fears.
Stock market turmoil highlighted investor worries on U.S.
economic health and disappointment about a fiscal rescue plan
promoted by the U.S. administration. []
Japan's benchmark Nikkei average <> lost 3.86 percent
to close at a two-year low.
Money being taken off the table in gold was reflected in
holdings of bullion on StreetTRACKS Gold Shares <GLD.P>
<XAUEXT-NYS-TT>, the world's largest gold-backed ETF, which fell
to 622.76 tonnes on Jan. 18 from 629.83 previously.
"Despite the (ETF) outflows, prices have found support.
Speculative interest in silver has also risen primarily on the
back of fresh long positions taking net positions to their
highest level since February," Barclays Capital said in a note
to clients.
On other bullion markets, the benchmark December contract on
the Tokyo Commodity Exchange <0#JAU:> closed at 3,007 yen a
gram, down 44 yen or 1.4 percent from Friday's close.
COMEX gold futures dropped in Asia after closing slightly up
in New York on Friday. The most active February contract <GCG8>
was down $12.90 or 1.4 percent at $868.90 from its New York
settlement on Friday.
Silver <XAG=> eased to $15.81/15.86 per ounce from
$16.14/16.19 late in New York on Friday. Platinum <XPT=> fell to
$1,547.50/1,552.50 an ounce from $1,556/1,561 on Friday, while
palladium <XPD=> eased to $365.50/370.50 an ounce from Friday's
U.S. levels of $367/372.
(Additional reporting by Chikafumi Hodo in Tokyo; Editing by
Michael Roddy)
