Gold retreats; dollar up

Tuesday, 12 January 2016 00:01 - - {{hitsCtrl.values.hits}}

(Reuters) - Gold retreated on Monday as the dollar rose versus the euro, but was still around a nine-week high as pressure on Asian stock markets continued to support investors’ flight to safety.

Asian shares sank to their lowest in over four years after the People’s Bank of China guided the yuan’s midpoint rate sharply stronger, a move that might calm concerns about a competitive devaluation but only added to market confusion as to Beijing’s ultimate intent on its currency policy.

European shares saw a steadier start, slightly weighing on bullion prices, usually seen as a safer bet by investors.

Spot gold was down 0.2% at $1,103.20 an ounce by 1053 GMT, while U.S. gold gained 0.1% to $1,099.30.

“Gold should be a lot higher, you’ve got all the China concerns, the Middle East tensions...clearly there is a lot of overhead selling, which is capping the price,” Societe Generale analyst Robin Bhar said.

Gold climbed to its highest since early November on Friday, adding more than 4% to its value this year, on concerns over the Chinese economy and tumbling stock markets.

Perceived missteps by China’s authorities in controlling their share market and currency have led to concerns Beijing might lose its grip on economic policy too.

China will face great difficulty in achieving economic growth above 6.5% over the 2016-2020 period due to slowing global demand and rising labour costs at home, the China Securities Journal quoted a top state adviser as saying.

China is the world’s biggest consumer of gold at around 1,000 tons a year.

Gold slid 10% last year on fears higher U.S. rates would lower demand for the non-interest-paying asset, while boosting the dollar. A stronger greenback makes dollar-denominated gold costlier for holders of other currencies.

“An accelerated pace of tightening is going to be bearish for the gold market,” Bhar said.

Investment appetite for bullion showed signs of picking up last week. Holdings of the world’s largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares, rose 4.2 tons on Thursday, data from the fund showed.

Bullion is often seen as an alternative investment during times of financial uncertainty, although safe-haven rallies tend to be short-lived.