Gold extends fall after run of monthly losses

Gold dropped on Friday, extending a one-percent fall in the previous session that had seen the metal close February with its longest run of monthly losses in 16 years.

The market struggled in league with losses in other commodities, with oil down one percent, copper hitting a three-month low and platinum at a seven-week trough after poor economic data in China and the euro zone hurt sentiment.

Currency fundamentals also moved against the market as the euro hovered at around seven-week lows versus the dollar, pushing its index to a six-month high against a basket of currencies.

Reuters report last Friday showed that spot gold fell 0.5 percent to $1,569.66 an ounce by 1309 GMT. It posted a 5-percent loss in February, the biggest monthly fall since last May and the fifth consecutive month of declines, its longest stretch of monthly losses in 16 years. U.S. gold futures for April delivery fell 0.4 percent to $1,571.70.

“With all the industrial commodities falling gold should have done the other thing but there are too many concerns about the eurozone and the dollar seems to be the only beneficiary today,” Societe Generale analyst Robin Bhar said.

The aftermath of Italy’s inconclusive elections also remained a concern to investors, as political instability in the euro zone’s third-largest economy threatens to reignite the region’s debt crisis. Euro zone finance ministers will discuss the situation next Monday.

Sentiment among fund investors remained negative. Holdings of the SPDR Gold Trust, the world’s top gold ETF, dropped to a nearly seven-month low of 1,254.49 tonnes on February 28 in its eighth straight session of decline, finishing February with a record monthly outflow of 73.606 tonnes.

“Investor confidence in bullion has taken a heavy blow this year and it is unlikely we shall see much fund liquidity returning back to the market as global ETF holdings continue to decline,” VTB Capital said in a note.

The market is looking at the $85 billion of spending cuts due to be introduced on Friday after U.S. lawmakers failed to reach a deal to avert them.

Although some analysts saw a looming fiscal crisis in the United States only lending minimal short-term support, others said this could help gold regain some favour, as it would argue for prolonged monetary support. Accommodative policies favour gold as low interest rates encourage investors to put money into the non-interest-bearing assets.

“As U.S. sequestration kicks off, headlines are likely to grab attention, and an escalation of concerns amid the political noise would offer upside risks ahead,” UBS said in a note.

Platinum fell 1.2 percent to a seven-week low of $1,560.75 an ounce, dented by a drop in Chinese factory growth to a five-month low in February, which was hurting industrial commodities.

Prices were last seen at $1,569.49, still down 0.7 percent, falling again below the value of gold.