Gold climbed on Wednesday as the dollar fell sharply against the euro and yen after a report suggested the US Federal Reserve planned to boost growth by purchasing $500 billion in US Treasury debt over six months. Spot gold was bid at $1,344.00 an ounce at 1625 GMT, against $1,336.00 late in New York on Tuesday. US gold futures for December delivery rose $8.30 an ounce to $1,344.30.
The precious metal fell 2.5 percent on Tuesday, its biggest one-day loss since July 1, after China raised its benchmark interest rates by 25 basis points, sparking a dollar recovery. While fresh weakness in the US currency helped prices to rise back above $1,340 an ounce, its move has been relatively muted after Tuesday's hefty losses.
"We're seeing a pretty big move in the dollar to the downside and we're not seeing that reflected as much in the gold market to upside," said Jeff Pritchard, an analyst at Altavest World-wide Trading. Gold typically moves in a close inverse relationship with the dollar, with strength in the US unit curbing gold's appeal as an alternative asset and making dollar-priced commodities more expensive for holders of other currencies.
Walter de Wet, an analyst at Standard Bank, said the gold market was seeing more physical selling of gold, with scrap coming to the market particularly from Asia, and that was also keeping a cap on gold prices. In the near term, gold was likely to be supported by the forthcoming Federal Reserve meeting and the Indian festival of Diwali, when demand for the metal is traditionally strong, de Wet said.
Gold's dip from highs has met physical buying from price-sensitive bullion markets like India, the world's biggest consumer of gold, analysts said. "The physical community were initially quite hesitant to buy as gold was abseiling south (yesterday), but today we have seen quite decent physical demand," UBS analyst Edel Tully said in a conference call on Wednesday.
Silver was at $23.80 an ounce against $23.32, having also slipped by the most since July 1 on Tuesday with a 4.1 percent fall. It is still one of the biggest climbers of the precious metals so far this year, up 41 percent. Platinum was at $1,676.49 an ounce against $1,667.50, while palladium was at $584.99 against $573.08.
The white metals also fell on Tuesday in gold's wake, but analysts say their firm underlying fundamentals are expected to lend support. Demand for the autocatalyst metals is expected to improve this year as the car industry continues its recovery, while mine supply in South Africa is expected to be constrained.
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