Gold ends up, sets biggest weekly drop in 3 months

Gold Bar

(Reuters) - A weakening dollar and short covering drove investors back into gold on Friday, lifting prices to end a sharp four-session pullback that still yielded the biggest weekly decline in almost three months.

Spot gold rallied as much as 1.7 percent to $1,600.49 per ounce, and steadied at $1,596.40 by 4 p.m. EST (2100 GMT,) up from a near 3-month low at 1,560.36 hit in the previous session.

U.S. gold rose 1.31 percent to close at $1,597.90 per ounce, after hitting a high at $1,598.10 per ounce.

David Lee, metals trader at Heraeus Precious Metals Management in New York said he thought gold's push higher on Friday was a function of the yellow metal being temporarily oversold after its nosedive from levels above $1,750 last week.

"Some people were taking the opportunity to scoop it up at lower levels. And, it's still up year to date. So, it wasn't surprising that people wanted to sell it off to raise cash for the year end," Lee said.

He warned, however, that the 1 to 2 percent rebound was not significant relative to the high priced of the yellow metal, adding that prices could come off again if the crisis in Europe worsens before year end.

"If comes back down to the day's low on Sunday night, for example, I'd say dump it really fast. I think it will continue to go down to around $1,550," said Lee.

A slightly weaker dollar against a basket of currencies also

helped boost precious metal prices .DXY. A softer U.S. currency makes dollar-priced commodities, such as gold, more affordable for holders of other currencies.

For the week, bullion lost around 6.60 percent, its biggest fall since late September. It remains vulnerable to a deepening euro zone debt crisis and rising funding stress.

"Gold took a beating this week and today bounced a bit as investors see this as a good moment to buy, but it is still vulnerable," Credit Agricole analyst Robin Bhar said.

"I expect gold will stay under pressure as the funding stress is increasing the need for liquidity, and gold is seen as one of the assets to liquidate."

The need for cash has overwhelmed gold's traditional status as a safe haven in the past few months, putting the metal on course for its first quarterly fall since end-September 2008 when the global credit crunch was at its worst.

Gold has, therefore, benefited recently from developments that have reduced risk aversion and the flight to cash.

It got a boost after Spain attracted solid demand for its bonds on Thursday, helping to ease concerns the country could be among the next to fall in the euro zone's debt crisis.

"At the moment a lot of people are resting their hopes on the fact that physical demand will pull gold back up again, but because of the amount of speculative investment that has gone into this market over the last years, it is obviously exposed on that basis," said Ole Hansen, a senior manager at Saxo Bank.

FUNDING STRESS

Gold benefits when central banks print money or cut interest rates or when money managers diversify assets.

"With access to liquidity being constrained, market participants have increasing problems to refinance," Credit Suisse said in a research note.

"As a result they have to sell their assets - including precious metals - to raise the much-needed cash. This is the main reason why gold prices fall on days of increasing funding stress."

In other precious metals, spot silver gained as much as 2.68 percent to trade at $29.97 an ounce, before pulling back to $29.64 per ounce late in the session.

Spot platinum rose to a high at $1,436.25, then changed hands at $1,415.24, up from $1,404 at Thursday's close.

Palladium climbed to a session high of $632.52 an ounce and then steadied around $620.72, higher than the previous close at $614.25 per ounce.

"As well as tracking gold, for platinum and palladium there are fears over weak industrial growth, and they may be hit harder as people look to liquidate risk," Bhar said.

"Some support however comes from costs. These metals are already trading very close to their costs."

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MF Global's Corzine: I did not intend to break rules

Jon Corzine

(Reuters) - A contrite Jon Corzine, in his first public defense of his leadership of now-bankrupt futures brokerage MF Global, told U.S. lawmakers he "never intended" to break rules and had no clue what happened to hundreds of millions of dollars in missing customer money.

The former U.S. senator and Goldman Sachs chief executive freely answered lawmakers' questions during a fairly friendly House Agriculture Committee on Thursday.

But he tried to duck responsibility by repeatedly claiming a lack of intent and lack of recollection about key events that led to the firm's downfall and its scrambled books.

Legal experts said it was a clear tactic to try to avoid criminal charges.

"I never intended to break any rules, whether it dealt with the segregation rules or any of the other rules that are applicable," said Corzine, wearing a somber dark suit and armed with an accordion file folder of documents and a highlighter pen.

Thursday's hearing was a stunning reversal for a political and financial power broker who endured three hours of pointed questions behind a placard that bore the title "Honorable" in front of his name. Corzine had once been the lawmaker who made witnesses squirm.

The testimony came six weeks after MF Global collapsed into bankruptcy once the market lost confidence in the firm following a revelation it had made a $6.3 billion bet on European sovereign debt.

The search for hundreds of millions of dollars in missing customer funds has sent reverberations through the farm belt and trading floors, and has attracted the attention of the FBI and federal prosecutors.

When pressed by lawmakers about whether he authorized a transfer of customer funds to firm accounts - a major violation of industry rules - Corzine said: "If I did, it was a misunderstanding."

Michael Weinstein, a white-collar lawyer with Cole Schotz law firm in New Jersey, said Corzine's persistent claim of lack of intent "was essentially code for 'Prosecutor, you bring these charges, you are going to have a hard time proving intent, and that's what you need to convict me'."

Neither MF Global nor any of its executives has been charged with wrongdoing.

Lawmakers thanked Corzine for not invoking his right to avoid self-incrimination under the Fifth Amendment of the U.S. Constitution. But he was criticized for not giving a straight answer on whether he directed the transfer of customer funds to firm accounts.

"Throughout this hearing I can count the times you used the words 'never intend,' 'not to my knowledge,' 'not to my recollection,' 'never intended to.' And I understand the position that you're in, but Mr. Corzine, we've got to find that money," said Democratic Representative David Scott.

THE 'PLIGHT' OF FARMERS

Corzine apologized for the collapse of the firm, and said his "sadness" pales in comparison to MF Global's customers, employees and investors.

Thousands of customers, including many farmers who use futures to hedge risks, have had their money frozen.

"Their plight weighs on my mind every day - every hour," Corzine told the panel after being sworn in by committee Chairman Frank Lucas.

Corzine said, "My father was one of those folks who'd go to a grain elevator to hedge out future crops."

The hearing stretched over eight and a half hours, and was the first to bring together a full cast of characters, including Corzine, regulators and the legal counsel for the trustee liquidating MF Global.

In its strongest accusation yet against the firm, CME Group Inc, MF Global's on-the-ground regulator, said the firm misused hundreds of millions of dollars of customer funds by moving the money to its own accounts.

"Transfers of customer funds for the benefit of the firm constitute serious violations of our rules and of the Commodity Exchange Act," CME Executive Chairman Terrence Duffy said.

The court-appointed trustee has estimated the shortfall of customer money at $1.2 billion, but CME has disputed that figure as being too high. In his prepared testimony, Duffy indicated the shortfall was roughly half that amount.

Corzine was flanked by his bow-tied lawyer, Andrew Levander, and said he was aware that he had the right to counsel. He pleaded ignorance on how customer money might have made its way into the firm's own coffers.

"I simply do not know where the money is, or why the accounts have not been reconciled to date," he said.

Lawmakers asked Corzine to lay out how he may have "unintentionally" contributed to the mixing of customer and firm money. He pointed to the chaos of the hours leading up to MF Global's bankruptcy filing on October 31.

"Someone could misinterpret 'You gotta fix it,' which I said the evening of October 30th,'" Corzine said.

'DIFFERENT JUDGMENTS'

Corzine defended his time at the top of the firm, which he joined in March 2010, saying MF Global reduced leverage during his tenure. He said he accepts responsibility for the repo-to-maturity trades that related to the firm's $6.3 billion bet on European sovereign debt.

"At the time that MF Global entered into the transactions, I believed that its investments in short-term European debt securities were prudent," he said.

Corzine said there was some dissent within MF Global about the European debt strategy but that "generally we arrived at a consensus."

He tried to drive home that the European debt bets have held up and said the market confidence crisis had more to do with MF Global executives' "inability" to explain that the firm's losses were not tied to the sovereign debt exposure.

"Your answers sound so nice, but you riskily invested people's money without their knowledge in a market I wouldn't invest in," said Republican Representative Jean Schmidt.

Corzine conceded the business strategy he championed may have been flawed.

"Sitting here today, with the knowledge that the market has drawn the conclusion it has drawn, and the facts are what they are, it would have been better to have taken different judgments," he said.

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