Gold prices dip in Asia as ECB stress tests better than expected

Investing.com - Gold prices eased slightly in early Asian trade on Monday after a stress test exercise for European banks released at the weekend showed a better than expected reading.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery traded at $1,230.20 a troy ounce, down 0.06%, after it settled last week at $1,231.80 a troy ounce.

Roughly one in five of the euro zone's top lenders failed landmark health checks at the end of last year but most have since repaired their finances, the European Central Bank said on Sunday.

Painting a brighter picture than had been expected, the ECB found the biggest problems in Italy, Cyprus and Greece but concluded that banks' capital holes had since chiefly been plugged, leaving only a modest 10 billion euros ($12.7 billion) to be raised.

Italy faces the biggest challenge with nine of its banks falling short and two still needing to raise funds.

The test, designed to mark a clean start before the ECB takes on supervision of the banks next month, said Banca Monte Dei Paschi Spa (OTC:BMDPY) had the largest capital hole to fill at 2.1 billion euros.

Last week, gold futures inched up modestly on Friday, but still posted a weekly loss as ongoing expectations for a sooner than expected rate hike in the U.S. and a broadly stronger dollar and weighed.

A recent batch of stronger than expected U.S. economic data indicated that the economic recovery maintained momentum and underlined speculation that the Federal Reserve could hike interest rates sooner than expected.

Rate hikes tend to dampen gold prices as it increases the relative cost of holding on to the metal.

The U.S. dollar was boosted amid mounting expectations the Fed will remove accommodation sooner than previously thought.

The US Dollar Index, which tracks the performance of the greenback against a basket of six major currencies, ended the week up 0.55% at 85.79.

A stronger U.S. dollar usually weighs on gold, as it dampens the metal's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.

In the week ahead investors will be looking ahead to the outcome of Wednesday’s Federal Reserve meeting amid expectations that it will wind up asset purchases under its third round of quantitative easing.

Investors will be scrutinizing the Fed statement for further indications on how soon interest rates could start to rise.

Also on the Comex, silver futures for December delivery traded down 0.07% to $17.185 a troy ounce by close of trade.

Copper futures for December delivery rose 0.07% at $3.041 a pound.

Comex copper prices advanced 3.8 cents, or 1.24%, last week as hopes for additional monetary stimulus in the euro zone and China boosted the outlook for future demand prospects.

Copper is sensitive to the economic growth outlook because of its widespread uses across industries.