Gold price sinks below $1,200

A stronger dollar and fresh five-year lows for oil saw bears return to the gold market on Monday with the metal sinking through the psychologically important $1,200 an ounce level in relatively quiet trade.

On the Comex division of the New York Mercantile Exchange gold for February delivery was changing hands for $1,193.30 an ounce in afternoon trade, down $29.20 or 2.4% from Friday's close and near the bottom of its trading range.

The oil price, which usually move in tandem with gold, tanked again on Monday to trade at $55.28 a barrel on Thursday, hitting the lowest level since May 2009.

The US dollar, which has an inverse relationship to gold, regained strength to within shouting distance of 8-year highs against the currencies of its major trading partners after stronger than expected manufacturing data from the US.

Monday's weakness has been against the trend of recent weeks when gold held up relatively well despite the negatives in the market.

Speculators in gold futures and options were also positioning for a stronger showing for the metal by adding 33% to bets that prices will rise.

Net long positions held by large investors like hedge funds jumped to just over 104,000 contracts or more than 10m ounces in the week to December 9 according to Commodity Futures Trading Commission data.

That's more than double the number of bets that prices will rise held by speculators a year ago, when gold was hovering near the same levels.