(adds quotes, updates prices)
By Veronica Brown
LONDON, Jan 21 (Reuters) - Gold hit a two-week low on Monday
as a weaker euro versus the dollar encouraged investors to lock
in profits from last week's run to record highs.
Dealers and analysts also cited some selling to cover margin
calls from hefty losses made on stock markets, but the overall
broad financial market uncertainty on fear of a U.S. recession
was seen as an underlying support for gold's safe-haven role.
Spot gold <XAU=> stood at $868.90/869.60 per troy ounce by
1605 GMT, compared with $881.90/882.60 in New York quoted late
in New York on Friday. The market earlier hit a $866.80 -- last
seen on January 8.
"It was an unpleasant day for the euro against the dollar
and yen and that filtered through into gold. We've swung from
being wildly bearish on the dollar and now the focus has shifted
to the euro," Mitsubishi analyst Tom Kendall said.
Market volatility was high, due in part to thinner
conditions with the U.S. Martin Luther King Day holiday.
The market is now more than 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.
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.
On Monday, currency fundamentals remained unfavourable, with
the euro down almost 1 percent on the day versus the dollar
<EUR=> and 1.7 percent against the yen <EURJPY=>.
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. []
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, with the most active February
contract <GCG8> down $14.40 or 1.63 percent at $867.30 from its
New York settlement on Friday.
Silver <XAG=> fell to $15.61/15.66 per ounce from
$16.14/16.19 late in New York on Friday. Platinum <XPT=> fell to
$1,545/1,549 an ounce from $1,556/1,561 on Friday, while
palladium <XPD=> eased to $363.00/368.00 an ounce from Friday's
U.S. levels of $367/372.
(Additional reporting by Chikafumi Hodo in Tokyo, Editing by
Peter Blackburn)
