Gold prices ease as euro rally fades

Gold slipped back below $1,650 an ounce yesterday, tracking a dip in the euro as some investors cashed in gains in the single currency after a short-covering rally, and as markets awaited the outcome of talks between Greece and its creditors. Stocks and other commodities also weakened as appetite for assets seen as higher risk faded. Spot gold was down 0.6 per cent at $1,647.26 an ounce at 1300 GMT, while US gold futures for February delivery were down $7.00 an ounce at $1,647.50. Gold has had a strong start to the year, rising more than 5 per cent so far after a sharp price drop in Dec-ember. Low interest rates, strong physical demand from key Asian markets and concerns over the both the inflation outlook and sovereign debt are all lending support, but analysts say the precious metal could face some tough headwinds this year. "There are a lot of reasons still to buy gold, but I think it's fair to say that with risk fatigue setting in, a little bit of price sensitivity coming through, and the dollar likely to show some strength, the gains for gold in the current environment are probably less exciting than they were," said David Jollie, an analyst at Mitsui & Co Precious Metals. The euro retreated from a two-week high against the dollar as some investors took profit, but traders said it looked likely to find support on cautious hopes Greece may be nearing a deal to avoid a chaotic debt default. Greece resumed talks yesterday with its private bondholders on a long-awaited deal needed to prevent a default by Athens.