Gold falls from $1,120 as euro slips against US dollar on German business sentiment update

Gold eased in the afternoon following a strong start when the yellow metal reached US$1,120/oz, boosted by a weaker US dollar. The American currency fell against a basket of six currencies ahead of Fed Chairman Ben Bernanke’s speech to the US Congress, which is scheduled for tomorrow. Last week, the Federal Reserve hiked the discount rate, which it charges banks for emergency loans, by 25 basis points to 0.75% to propel speculation that the anticipated tightening of monetary policy could come sooner than expected.
The Fed has since played down the increase and Bernanke is expected to reaffirm this stance tomorrow and voice the Fed’s intention to keep the interest rates at near zero.
However, the euro slipped against the US dollar later in the day after a bearish update from Germany, where the Ifo sentiment index declined to 95.2 from 95.8 in January, while an increase to 96.4 was expected.
Gold, which is seen as a riskier investment alternative and moves inversely to the US dollar, slid to US$1,105/oz.
Other precious metals also declined as silver and platinum dropped to US$16.08/oz and US$1,521/oz respectively.
Last week, the World Gold Council, said that gold demand remained above US$100 billion for the second year in a row in 2009, while falling 11% in tonnage terms. The decline in tonnage masked a progressive recovery in jewellery and industrial demand and resilient investment demand amid uncertainty in global financial and commodity markets, said the Council.
Most mining stocks were in decline today. Silver miner Fresnillo (LSE: FRES) was at the bottom of the sector in the FTSE 100 with a loss of nearly 2%. Platinum miner Lonmin (LSE: LMI) and gold producer Randgold Resources (LSE: RRS) both shed 1%.
Specialty chemicals firm Johnson Matthey (LSE: JMAT) went against the tide, posting a small gain.
Midcaps also declined. Aquarius Platinum (LSE: AQP) and silver producer Hochschild Mining (LSE: HOC) lost more than 2.5%, while gold producer Petropavlovsk (LSE: POG) was down 2%.
Turkey and Saudi Arabia operating gold explorer KEFI Minerals (AIM: KEF) and London listed Australian gold producer Leyshon Resources (AIM: LRL) led the juniors with gains of 7.5% and 5.5% respectively. Turkey focused gold miner Ariana Resources (AIM: AAU) and UK-registered China operating copper and gold miner Central China Goldfields (AIM: GGG) both added 4%.
Uzbekistan focused gold miner Oxus Gold (AIM: OXS) and Africa focused gold deposit developer Cluff Gold (AIM: CLF) were in decline, shedding 6% and 4% respectively.

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