PRECIOUS METALS:

 Comex Gold Falls On EU Downgrade Concern
--Comex Feb gold down $23.60 at $1,710.90 a troy ounce
--S&P downgrade warnings keep focus on EU liquidity
--Physical demand sags in India as currency moves keep potential buyers on
the sidelines

Investors shed gold and other precious metals on
Tuesday as the chance of credit-rating downgrades in the euro zone kept
investors interested in holding cash.
The most actively traded gold contract, for February delivery, recently
traded $23.60 lower, or 1.4%, at $1,710.90 a troy ounce on the Comex division
of the New York Mercantile Exchange.
Gold futures weakened after the announcement late Monday from Standard &
Poor's that it had placed Germany, France and 13 other euro-zone countries on
watch for a possible downgrade as Europe continues to struggle to keep its
battered financial system running smoothly. Such announcements typically
indicate a 50% chance of a downgrade within 90 days.
Some investors buy gold as a safe harbor from turmoil in other markets, but
the risk of a credit crunch in the euro zone has pushed gold prices largely in
line with risky assets such as equities and commodities in recent weeks. The
worry is that further financial deterioration in the euro zone could spur a
rush to cash at the expense of gold and other assets. "It appears that gold
prices are more closely influenced by risk-related trading than by currency-led
trading or safe-haven buying," HSBC analyst James Steel said in a note. "There
is still a liquidity squeeze," he added. "Until this eases, gold may stay on
the defensive."
Also weighing on gold prices was weak physical buying, market participants
said. "Much of the demand weakness is from India," said Walter de Wet, an
analyst with Standard Bank, in a note. He said a weakening Indian rupee had
helped push local prices of gold to record highs this month, limiting
consumption by the world's top gold jewelry consumer.
Market participants were also cautious ahead of a summit of euro-zone leaders
later this week. France and Germany have proposed an initiative to enforce
budget discipline across the currency union, and the chance of a more political
and economic turmoil kept potential gold buyers reluctant to increase their
holdings of the metal.
Other precious metals also weakened on Tuesday, with the March-delivery
silver contract recently trading down 1.7% at $31.825 a troy ounce.