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LONDON — Gold steadied below a two-month high yesterday as European shares inched lower and the Iraq crisis intensified, supporting the metal’s appeal as a hedge against risk, with gains checked by a firm dollar and low physical demand. Iran’s supreme leader accused the US on Sunday of trying to retake control of Iraq by exploiting sectarian rivalries, as Sunni insurgents drove towards Baghdad from new strongholds along the Syrian border.

Spot gold was down 0,2 percent at $1 312 an ounce in the morning. The metal posted its biggest weekly gain in three months last week to a two-month high of $1 321,90 in the previous session.

“After last week’s rally, we just have to see whether there is any additional buying left in the trunk, and the level to keep an eye on is at $1 330, but it is not unusual to have a little bit of consolidation,” Saxo Bank senior manager Ole Hansen said.

“The focus of the next couple of weeks will continue to be Iraq. In stock markets, we had a new record high last week but we are seeing a bit of a wobble today in Europe and any further weakness could lend further support but not enough to justify another rally,” he said.

Gold was supported from weaker European stocks after eurozone business activity data showed growth slowing. But the dollar was firm against a basket of currencies.

Investors tend to seek refuge into safe havens such as gold from riskier assets in times of geopolitical or financial troubles, while a stronger dollar makes the dollar-denominated metal more expensive for foreign investors. Hedge funds and money managers increased their bullish bets in gold futures and options in the week to June 17 as bullion prices climbed, according to data from the Commodity Futures Trading Commission on Friday.

With the higher prices, physical demand from top consumers China and India has been slow to pick up. Traders said physical demand across Asia has been subdued as many expect gold prices to fall further.

Demand is also being hurt by large purchases last year, when gold prices fell 28 percent, and earlier this year.
“There is underlying support from the geopolitical tensions in the Middle East, but with Wall Street near record highs, risk appetite looks strong and that is hurting gold,” said a precious metals trader in Hong Kong.

“Without strong demand either from the physical markets or from exchange-traded funds, the gold rally is not going to last.”
Silver fell 0,5 percent to $20,76 an ounce after jumping 6,3 percent last week, its biggest gain since February.

Platinum fell 0,6 percent to $1 446,75 an ounce, while palladium dropped 0,6 percent to $812,20 an ounce, as investors monitored a five-month mining strike in major producer SA that looked set to drag on.

South African platinum union the Association of Mineworkers and Construction Union had made “unaffordable” new demands beyond a deal struck with producers last week, mining firms said, dashing hopes of an end to the country’s longest and costliest mining strike. – Reuters.