NEW YORK (Dow Jones)--Gold futures have pulled back Tuesday morning as euro zone credit concerns damp risk tolerance and send investors into the U.S. dollar and out of metals and higher yielding currencies.
In recent trading, benchmark February gold futures were down $9.70 at $1,114.10 an ounce on the Comex division of the New York Mercantile Exchange. The ICE Futures U.S. Dollar Index was up 0.640 point at 76.975 points.
The dollar was rising against its major rivals on confidence in the U.S. economic recovery and conjecture the Federal Reserve could indicate a clearer timetable for the withdrawal of monetary stimulus Wednesday. The Federal Open Market Committee begins their monthly two-day meeting Tuesday, with an interest-rate decision expected around 2:15 p.m. EST Wednesday.
Meanwhile Tuesday, the euro was under pressure from continued disappointment about the recovery in the euro zone, Greece's failure to come up with a credible debt recovery plan and concern about Austria's banking system.
Gold and other commodities, as well as stocks and higher yielding currencies, have been gaining or losing lately as risk plays, trading in a tight inverse with the dollar. When risk appetite is high, investors buy these assets--sending gold to a record above $1,200. But when risk tolerance wanes, investors buy the dollar as a safe haven. Such trading has brought gold down to its current levels.
Also, recently encouraging economic data from the United States have boosted the dollar on expectations the Federal Reserve may next year raise the benchmark U.S. interest rate earlier than previously thought.
The recent Dubai debt crisis illustrates gold's current status as a risk play. News Monday of Abu Dhabi's $10 billion surprise bailout of troubled Dubai debt comforted markets and sent the dollar lower and gold higher. Tuesday, the reverse is occurring on the other worries.
"The increasing risk appetite seen yesterday on the Dubai bailout may be challenged in the coming days by increasing euro zone debt concerns," a research note from bullion dealer GoldCore said.
Gold prices reacted little initially to news that the U.S. producer price index for finished goods climbed 1.8% on a seasonally adjusted basis in November. Economists had expected prices would climb by 1.0%.
As an inflation hedge, gold prices are sensitive to rising or falling prices.
-By Matt Whittaker, Dow Jones Newswires; 212-416-2139; matt.whittaker@dowjones.com
