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. Last Updated: 07/27/2016

Gold Hits Fresh Low As U.S. Dollar Shines




LONDON -- Gold fell more than $5 an ounce to a 20-year low of $256.80 on Tuesday after the Bank of England sold 25 tons at auction, while the U.S. dollar briefly touched an all-time high against the struggling euro.


Wall Street shares firmed after a long weekend for the Independence Day holiday lifting European stocks off their earlier lows.


Oil prices held above $18 a barrel for benchmark Brent blend, supported by fresh evidence that OPEC tightened supply in June.


The controversial gold auction, in which the Bank of England said it sold 25 tons of its reserves at $261.20 an ounce, sent August gold futures on New York's Commodity Exchange tumbling to a lifetime low of $258.


The sale was the first step in Britain's plan to replace more than half its gold reserves with foreign currency over the next few years.


Analysts said demand had outstripped the amount of gold on offer 5.2 times and that this boded well for future sales. The International Monetary Fund and Switzerland also have plans to sell some of their gold reserves.


The euro fell below the $1.02 support level after weaker-than-expected confidence figures from the EU and a rise in jobless data in Germany dealt a blow to analysts' expectations of a recovery in the euro-zone economy in the second half of 1999.


"These figures suggest that the economy is not picking up that well," said Elisabeth Legge, senior economist at Bankgesellschaft Berlin in London.


"What is clear is that the growth differential between the United States and the euro zone is remaining and that is not too good for the euro," Peter Praet of Fortis Bank in Brussels said.


The divergence in the two economies was the main reason for the weakness of the euro, which hit a record low of $1.0184 early in the day before clawing back above $1.02.


It took little comfort from European Central Bank Vice President Christian Noyer saying he was confident the unit would be a strong currency in international markets.


"I think the [euro] bears are closing in very fast now on a test of parity," said David Brown, chief economist at Bear Stearns in London.


Brown said the market had been overreacting to a newspaper report that the French Planning Commission had suggested the euro-zones's stability pact should be loosened. French Finance Minister Dominique Strauss-Kahn strongly denied the report.


The same speculation hit European debt markets, driving down government bond prices and forcing up yields, which move in the opposite direction.


Germany's benchmark September 10-year bund future contract hit a contract low of 108.65, while the yield on the underlying cash bund moved well above 4.70 percent to its highest levels in 12 months.


Germany's DAX closed down 0.23 percent, or 12.72 points, to 5,612.90 points after hitting a new 1999 high of 5,649.89 on Monday.


Britain's FTSE 100 hits its highest close on record, finishing 28 points higher at 6,620.


The blue-chip CAC-40 in France ended off just 5.33 points at 4,692.51.