Gold extended losses from a record high on Thursday, surrendering as much as $8.60 an ounce as the dollar held on to its gains against the euro ahead of a testimony by US Federal Reserve Chairman Ben Bernanke.
Spot gold fell to $880.25/881.25 an ounce from $885.60/886.30 late in New York on Wednesday, when it dropped more than 1 percent as funds liquidated positions to cover margin calls from losses in stock markets. "That's really a reflection of possibly people's expectations of some weakness in the economy to come as a result of the US On top of that, some profit taking is taking some buyers off the table to pay for margin calls," said Darren Heathcote of Investec Australia in Sydney.
"I think there'll be a little bit of recession, downward pressure on it. Maybe there won't be so much jewellery demand, but I think on the whole, the recent move has been reinfluenced significantly by the need to cover margin calls."
Gold hit a record high at $914 an ounce on Monday on expectations of a sharp cut in US interest rates and turmoil in the financial markets triggered by a mortgage-related crisis.
US stocks fell on Wednesday, after Intel Corp posted both a disappointing profit and outlook, driving the S&P 500 to its lowest closing level in 14 months. "I believe there is a very good chance that we'll see gold recover, providing the stock market, particularly the US stock market stabilises," said Heathcote of Investec.
He pegged support levels at $875 and $877, with resistance at $900. The euro was up at $1.4680 but near a two-week low of $1.4594 hit on electronic trading platform EBS on Wednesday after comments from a European Central Bank official fuelled fears that US economic weakness may be spreading to Europe. Investors will scrutinise Fed Chairman Bernanke's words later in the day for clues on how much the US central bank is poised to cut interest rates later this month.
Many dealers have priced in expectations for at least a half-percentage-point interest rate cut by the Fed at its next regular policy meeting on January 29-30 to stimulate the sagging economy.
"The small specs are still a bit on a short side. Just a bit. They might be selling at the lower range right now," said William Kwan at Phillip Futures in Singapore. "It's a healthy correction. It makes gold cheaper for investors to purchase. It's now stabilising around the $880 level, which is quite a fair value for long-term investors seeking safe-haven asset," he said.
The key gold futures contract for December 2008 delivery on the Tokyo Commodity Exchange (TOCOM) ended the session 8 yen per gram higher at 3,054 yen in a technical rebound after falling by the daily 120 yen limit on Wednesday. Comex gold futures rebounded slightly, with the most active February contract rising $0.6 an ounce to $882.6 an ounce.
Goldman Sachs raised its 2008 gold price forecast to $915 per ounce from $800, factoring in an expected US recession in the second and third quarters that would lead to a weaker dollar. Platinum fell to $1,550/1,555 an ounce from $1,559/1,564 an ounce late in New York. Silver was unchanged at $15.84/15/89 an ounce. Palladium dropped to $368/373 an ounce from $371/375.
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