Gold drops most this year as investors sell after Greek election

[LONDON] Gold fell the most this year amid speculation an anti-austerity party's victory in Greek elections won't result in the country leaving the currency bloc.

Greek Prime Minister-elect Alexis Tsipras prepared to form a government after Syriza came within two seats of an absolute majority with most votes counted. He has pledged to keep the nation within the single currency area as he negotiates a writedown of Greek debt and eases budget constraints.

Gold touched a five-month high last week after the European Central Bank announced plans to increase stimulus to revive inflation. Investors have boosted holdings in gold-backed funds.

"The market has been trading on uncertainty surrounding central bank action and the Greek elections for some time, so to see some profit-taking is not at all surprising," Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt, said by phone.

Gold for immediate delivery declined 0.9 per cent to US$1,283 an ounce by 10:44am in London, according to Bloomberg generic pricing. It's set for the biggest drop since Dec 31. Bullion for February delivery was 0.7 per cent lower at US$1,282.90 on the Comex in New York.

Holdings in gold-backed exchange-traded products are at the highest since November, data compiled by Bloomberg show. Investors added 23.3 metric tons last week, the most since in more than two years.

Money managers and other speculators raised their net-long position, or bet on higher prices, by 27 per cent in the week ended Jan 20, US Commodity Futures Trading Commission data show.

Silver for immediate delivery declined 1.7 per cent to US$17.9820 an ounce. Platinum fell 1.3 per cent to US$1,252.63 an ounce, while palladium lost 1.1 per cent to US$767.25 an ounce.

BLOOMBERG