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Gold steady at $1,240 as markets retreat on US housing data

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Gold held steady at US$1,240/oz after nearly recapturing US$1,250/oz earlier in the day amid another selloff in global stock markets, this time triggered by concerns over the strength of the ongoing economic recovery in the US after home sales declined by 2.2% in May and the reversal of President Barack Obama’s ban on offshore drilling by a judge in Louisiana.

Today’s decline spurred safe-haven buying, which once again put gold in demand. Later, however, the trend in the markets was reversed as the FTSE 100 recouped the 1% loss suffered this morning, while futures for the main US stock market indexes pointed to a higher open on Wall Street, following yesterday’s freefall, which saw the Dow Jones and S&P 500 indexes shed more than 1%.

Investors were optimistic ahead of today’s interest rate decision from the Fed, which is expected to leave the rates unchanged at the current ultra-low levels.

Gold has been increasingly seen as a hedge against risks associated with volatility in currency and equity markets. Before the debt crisis kicked in to destabilise the euro and European markets, gold served as an investment alternative to the US dollar and moved inversely to the American currency and in tandem with the euro.

Other precious metals were in decline with silver and platinum sliding to US$18.66/oz and US$1,568/oz respectively.

Most major mining stocks declined. Platinum miner Lonmin (LON:LMI) was at the bottom of the pile, shedding 3%. Randgold Resources (LON:RRS) followed with a 1.7% loss, while silver miner Fresnillo (LON:FRES) was flat.

Specialty chemicals firm Johnson Matthey (LON:JMAT) declined 2.5%.

Midcaps followed the trend as Aquarius Platinum (LON:AQP) and silver producer Hochschild Mining (LON:HOC) slid 2.6% and 2.3% respectively, while gold miner Petropavlovsk (LON:POG) was unmoved.

Turkey focused gold miner Ariana Resources (AIM: AAU) led the sector with a 22% rally. Australian gold and copper prospector Solomon Gold (AIM: SOLG) added 7.5%, while South American based explorer Mariana Resources (AIM: MARL) and Turkey and Ethiopia operating gold miner Stratex International (AIM: STI) added more than 5%.

Junior diamond miner Stellar Diamonds (LON:STEL) slipped 6%.

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