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Gold down on US fiscal worries, options in focus

Gold down on US fiscal worries, options in focus* U.S. fiscal crisis worries weigh

* COMEX open interest hovers near 2012 high after Fri. rally

* Gold, outside markets ignore Greek aid agreement news

* Coming up: US new home sales, Fed’s Beige Book Wednesday   (Adds markets details, graphic link, updates prices)

By Frank Tang

NEW YORK, Nov 27 (Reuters) – Gold fell on Tuesday for a second session as U.S. fiscal worries overshadowed progress in easing Greece’s debt burden, and a key option expiration held bullion prices in a tight range.

Safe-haven demand for gold faded after euro zone finance ministers and the International Monetary Fund agreed to reduce Greece’s debt, paving the way for the release of aid loans.

 Still, open interest in U.S. gold futures remained near a 2012 high following Friday’s price rally. Analysts said these new bullish positions could help extend the rally.

Gold prices have gravitated toward $1,750 an ounce due to heavy trading of call and put options around that option strike level, brokers said. COMEX December option expiration is Tuesday after market close.

“We believe gold and silver prices will tend towards consolidation, as investors await further developments on the U.S. fiscal cliff negotiations,” said James Steel, metal analyst at HSBC.

Fears of $600 billion in automatic cuts in government spending and tax increases early next year have decreased gold’s inflation-hedge appeal. Some worry the tax hikes and spending cuts could tip the U.S. economy into another recession.

Gold investors were cautious as the U.S. Congress crept toward compromise on taxes and spending, but a firm deal to avert the fiscal cliff seemed far off.

Spot gold was down 0.4 percent at $1,741.86 an ounce by 2:44 p.m. EST (1944 GMT), below a five-week high of $1,754.10 reached on Friday.

U.S. COMEX gold futures for December delivery settled down $7.30 at $1,742.30.

Trading volume was more than 50 percent above the 250-day average largely due to a combination of option expiry and contract rollover ahead of first-notice day Friday.

Heavy buying of $1,700 COMEX January put options also indicates some investors are looking for protection near the year end, options traders said.

(January option positioning: http://link.reuters.com/cym34t)

Open interest eased but stayed near a 2012 high at 493,245 lots reached Friday when gold jumped 1.5 percent.

“Rising open interest on a sharply higher price means that this was very real buying rather than short covering,” said Dennis Gartman, a veteran trader and the publisher of the Gartman Letter.


Gold ignored positive U.S. economic news. A gauge of planned U.S. business spending in October rose by the most in five months.

Among other precious metals, silver was down 0.4 percent at $33.98 an ounce. Platinum was unchanged from Monday’s last trade at $1,608.74 an ounce, while palladium  climbed 0.7 percent to $665.25 an ounce.

Source: Reuters

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