* Dubai highlights higher sovereign risk
* Margin calls may be playing a part
* Central bank buying to buoy sentiment
(Updates prices and comments)
By Pratima Desai
LONDON, Nov 27 (Reuters) - Gold prices tumbled nearly 5
percent to a one-week low below $1,140 an ounce on Friday as
investors fearing debt default in Dubai sought safety in dollars
and cash.
Other precious metals also slipped. Silver <XAG=> hit a
two-week low of $17.66 an ounce, while platinum <XPT=> and
palladium <XPD=> touched one-week lows of $1,418.50 and $351 an
ounce respectively.
Spot gold <XAU=> briefly hit a low of $1,136.80 a troy
ounce, the lowest since Nov. 16 and was bid at $1,153.50 an
ounce at 1429 GMT from $1,192.60 on Thursday, when the precious
metal hit $1,194.90 -- a record high.
"Dubai has been the catalyst for an event that was overdue
both in gold and forex," said Simon Weeks, director of precious
metals at Bank of Nova Scotia. "But now that the trend has been
reversed think it will continue for a while longer," he said.
"Longer term, gold will come back that much stronger and no
doubt will make new highs but for now we come lower," Weeks
said, adding $1,125-1,130 an ounce was a support level.
Dubai said on Wednesday two flagship firms planned to delay
repaying billions of dollars in debt. State-backed Dubai World
has $59 billion of liabilities -- a big chunk of the emirate's
total debt of $80 billion. []
That has raised the spectre of default and triggered a
sell-off of risky assets such as commodities and stocks.
For graphic on risk assets click on
http://graphics.thomsonreuters.com/119/GLB_RSKA1109.gif
Gold, a traditional safe haven, has also been sold because
the higher dollar makes the precious metal more expensive for
holders of other currencies. []
"The events in Dubai highlight the elevated level
of sovereign risk heading into next year, the potential pockets
of dollar strength that this can deliver," Deutsche Bank said in
a research note.
Many investors will also be selling gold, up more than 30
percent this year, to pay for losses elsewhere.
"Margin calls might be playing a part here, particularly for
Middle Eastern investors," said David Thurtell, analyst at Citi.
CENTRAL BANKS BUOY
But analysts said expectations of gold purchases by central
banks in emerging markets will help buoy prices.
Earlier this week the International Monetary Fund said it
had sold 10 tonnes of gold to the Central Bank of Sri Lanka,
adding the sale was part of the 403.3 tonnes approved by its
executive board in September. []
The IMF has already sold 202 tonnes to the Reserve Bank of
India and the Bank of Mauritius.
"The central bank story is the one that has driven gold
higher not just the dollar story," said Daniel Major, a metals
analyst at RBS Global Banking & Markets.
Earlier this week the IMF declined to comment on a newspaper
report which suggested India could buy more gold from the fund.
[] []
Also driving gold are purchases by investors looking for a
hedge against inflation that could be triggered by the vast
amounts of money being pumped into the global economy by central
banks and governments around the world.
That can be seen in the world's largest gold-backed
exchange-traded fund, SPDR Gold Trust <GLD>, holding 1,127.860
tonnes as of November 25 and within touching distance of the
record 1,134.03 tonnes seen on June 1. []
Spot silver was at $17.90 an ounce from $18.61 late in New
York on Thursday, platinum at $1,425.50 an ounce from $1,452 and
palladium at $359 an ounce from $368.
(Additonal reporting by Veronica Brown, Editing by William
Hardy)
((pratima.desai@thomsonreuters.com; +44 207 542 5113))
