Safe haven status returning to gold as euro sinks after weak bond sales

INTERNATIONAL. Wholesale market prices to buy gold touched a two-week high at US$1,625 per ounce as London opened for business on Thursday, before pulling back to US$1,609 as commodities and world stock markets fell, led by Eurozone banking shares.
The 17-nation Euro currency fell to its lowest level in 16 months vs. the US Dollar.
Prices to buy gold and other precious metals had remained "well bid throughout" Asian trade on Thursday said a note from a Hong Kong dealer.
"Jewellers were restocking [and] demand was good in southern India," says bullion merchant Chanda Venkatesh of CapsGold in Hyderabad, speaking to Reuters and citing a southern Indian festival.
"Jewelry demand for gold is pretty good," agreed another dealer, but added that the price for gold futures holders to 'exchange for physical' (EFPs) fell hard overnight, possibly ahead of bullion sales due to New Year rebalancing in the big commodity-tracking investment indices.
"Gold appears at present to be living up more to its status as a safe haven again," says a note from Commerzbank, citing "geopolitical risks" in Western sanctions against Iran, plus the ongoing Eurozone debt crisis.
In Iraq today, at least 50 people were killed in a series of bomb attacks, extending the death-toll since US troops pulled out in mid-December, while protests over rising fuel prices in Nigeria, the world's 10th largest oil producer, were broken up by police.
Base metal and other commodity prices fell hard, but European crude oil contracts pushed higher to US$113 per barrel despite the rising US Dollar.
Silver prices fell back 3% from a 3-week high at US$29.70 per ounce.
"[Wednesday] saw gold finally beginning to break away from trading in step with risk assets," said one London dealer this morning.
The correlation between gold prices and the VIX volatility index of daily movement in US equities – positive during most of 2011 – recently fell to its most negative reading in two years, notes Reuters Technical analyst Wang Tao.
"We believe that gold prices will recover in 2012, and we maintain our bullish posture," says HSBC analyst James Steel, despite cutting his average forecast for this year from $2025 per ounce to $1850 this week.
Eurozone investors looking to buy gold today saw the price touch 3-week highs above €40,000 per kilo as the single currency slumped on the forex market to its lowest level against the Dollar since Sept. 2010 at US$1.28.