Gold prices fell more than 2 percent on Wednesday in volatile activity, with profit-taking sparked by failing oil prices and a euro under pressure versus the dollar. Bullion dropped sharply in early trade as weaker oil prices encouraged investors to take profits after a failed run at record highs above $914 per ounce on Tuesday.
Losses were extended as the euro dropped more than 0.8 percent against the dollar, making dollar priced gold dearer for non-US investors. By 1620 GMT, gold was quoted at 875.15/875.85 down more than 2.5 percent from $899.50/900.20 quoted late in New York on Tuesday, after trading in a wide band of $877.80-$899.25.
The euro fell against the dollar after European Central Bank governing council member Yves Mersch said the central bank may revise down its euro zone growth forecasts for 2008.
"After showing somewhat of a recovery this afternoon gold faced renewed selling pressure on the back of a significantly strengthening dollar due to the comments by Mersch," said Alexander Zumpfe, trader at Heraeus Precious Metals. Oil slid more than $1 a barrel to the lowest in almost a month, pressured by further signs that slowing US economic growth will erode fuel demand.
"The latest data shows that net Comex gold positions and holdings in the physically-backed ETF have reached to record levels," said Suki Cooper, metals analyst at Barclays Capital, referring to US gold futures and exchange-traded funds.
She added that corrective moves lower should be viewed "in the context of what remains a strong medium-term uptrend, buoyed by positive external drivers as well as constrained mine supply." Gold held in New York-listed StreetTRACKS Gold Shares, the world's largest gold-backed ETF, rose to a record high of 652.56 tonnes this week. Goldman Sachs raised its 2008 gold price forecast, factoring in an expected US recession in the second and third quarters of the year that would lead to a weaker dollar.
The brokerage raised its price forecast to $915 per ounce from $800 for 2008 and said its sees prices to range about $850 at the end of the year as the US economy recovers. But some analysts advised caution.
"We believe that there is a risk that the weakness in equities, FX carry trades, and ongoing strength in bonds will trigger a cross sector deleveraging whereby crowded trades will come under pressure," said John Reade, head of metals strategy at UBS Investment Bank.
In other bullion markets, the key Tokyo gold futures contract for December 2008 delivery closed at 3,048 yen a gram, down 116 yen or 3.7 percent from Tuesday's close. US gold futures fell after hitting another record high on Tuesday. The most active February contract fell $20.9 an ounce to $881.70 an ounce.
Platinum fell to $1,558.50/1,563.50 from $1,571/1,576 an ounce in New York and off Monday's record high of $1,590.50. Silver was at $15.99/16.04 an ounce, versus $16.10/16.15. Palladium dropped to $375.50/380.50 from $378/383.
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