Gold firmed in Europe on Friday, having recovered early losses related to a surge in the dollar, as investors bought the metal to hedge against volatility in the foreign exchange markets and sovereign risk in the eurozone. Gold priced in euros hit a record high of 826.35 euros an ounce as investors sought to diversify away from the beleaguered single currency.
Spot gold was bid at $1,116.35 an ounce at 1601 GMT against $1,111.40 late in New York on Thursday, having earlier touched a low of $1,098.55. Gold slipped 1 percent in Asia but met buying interest in European trade amid fears over currency market instability. The euro is suffering from dollar strength and concern over the fiscal health of smaller eurozone economies.
"In the eurozone, we have seen better demand in the last few days than before," said Deutsche Bank trader Michael Blumenroth. "People want to buy something to be on the safe side in case the euro declines further." US gold futures for April delivery on the COMEX division of the New York Mercantile Exchange were down $3.00 to $1,115.00 an ounce.
Gold's usual relationship with the US currency - strength in which normally weighs on the precious metal - has weakened as fears over the outlook for paper currencies in general lifted interest in bullion as an alternative asset.
The dollar hit an eight-month high against a currency basket on Friday, extending gains after the Federal Reserve's surprise decision to raise its discount rate, its first hike in the rate since mid-2006.
In its first interest rate move since December 2008, the Fed lifted the emergency lending rate it charges banks to 0.75 percent from 0.5 percent, but insisted borrowing costs would not rise for consumers or companies. "This development...is near-term gold-bearish, as it reduces liquidity," said HSBC analyst Jim Steel in a note. "Highly accommodative monetary policies have been an important element in the gold rally."
He noted, however, the Fed's assertion that the change was not expected to lead to tighter financial conditions or lead to a change in the outlook for monetary policy. Silver was at $16.08 an ounce against $15.84, platinum at $1,513.50 an ounce against $1,514, and palladium at $434 against $429.50.
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