Gold fell from record highs on Friday to a session low at $1,219.05 an ounce as the metal was caught up in selling of other assets such as stocks and commodities after failing to break through the $1,250 level. Spot gold fell as much as 2.4 percent from its earlier record high of $1,248.95 an ounce and was bid at $1,227.15 an ounce at 1541 GMT, against $1,231.83 late in New York on Wednesday.
Traders cashed in gains on the precious metal as other assets such as stocks and commodities dropped. European shares fell more than 3 percent in late afternoon trade, while oil tumbled 4.3 percent and base metals slid.
"There are losses being made in various places, and potentially there is a need to lock in some profits to offset some of the losses being created in commodities generally... and in other sectors," said Saxo Bank senior manager Ole Hansen. "When you start to see other sectors start to give way as we've seen here, that will have a natural spillover effect."
Gold could extend its losses still further from record highs before it finds support, he said. "$1,200 really needs to hold now for this not to be a repeat of what we saw back in December last year. That will be sitting in the back of people's minds."
Gold's last foray above $1,200 an ounce in December was quickly followed by a hefty correction, with prices dropping as much as 5 percent the day after hitting a then-record $1,226.10. US gold futures for June delivery on the COMEX division of the New York Mercantile Exchange hit a record $1,249.70 an ounce and were later down $1.40 at $1,227.80.
Safe-haven buying is seen continuing to buoy gold prices, their current correction notwithstanding. "The gold price has benefited from strong safe-haven demand linked to fiscal issues in the eurozone, and a pull-back from the euro as a reserve currency," said BNP Paribas analyst Anne-Laure Tremblay.
Silver tracked gold lower to $19.13 an ounce against $19.41. Platinum was at $1,712.50 an ounce against $1,731.50 and palladium at $522 against $537. Rising investment may take platinum to $2,000 an ounce in the next six months, its highest since mid-2008, Johnson Matthey said in a statement released ahead of London Platinum Week. Palladium may rise as high as $700 an ounce, it added, its highest since 2001.
Investment interest in physical gold was strong as buyers sought safety, with holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, at a record high 1,209.5 tonnes on Thursday. The fund's reserves have risen 68.5 tonnes or 6 percent in the last four weeks. The SPDR ETF is the world's sixth largest holder of gold, ahead of Switzerland, China and Japan.
However, high prices are set to curb gold demand from the jewellery sector after a soft year in 2009 in key gold buying centres such as India, Turkey and the Middle East. Gold imports by India, the world's biggest market for the precious metal, could drop for a third straight year in 2010 as record high prices scare off traditional buyers.
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