Gold fell back from six-week highs yesterday after the euro came under pressure following the breakdown of talks between European finance ministers and Greece's private creditors. In Europe, talks between Eurozone finance ministers and private creditors over the restructuring of Greece's debt broke down, snuffing out a recovery rally in the euro and denting risk-related assets such as equities.
The Chinese Lunar New Year holiday meant activity in the world's second-largest consumer of gold was absent, while activity was muted in top consumer India, where import duties on gold were nearly doubled last week.
Gold's correlation to the euro fell to its least positive in two months, in sharp contrast to early January, when this relationship was at its most positive in two years. Spot gold was last down 0.4 per cent on the day at $1,670.00 an ounce at 1023 GMT. "Gold is at a crossroads because ... we don't know if it will break towards $1,700 or back towards $1,650," Afshin Nabavi, head of trading at MKS Finance said, of gold's medium-term prospects.
"[Investor demand] is something that has been missing all through January. I think the price movement in December sort of shell-shocked a lot of investors and they will not come back into the market until they see some kind of confirmation," he said. Gold fell by more than 10 per cent in December, marking its second-largest monthly decline of 2011 as an investor preference for cash over most other assets in the run-up to the end of the year took its toll on the bullion price.