Gold retreated from early highs on Thursday as the dollar extended gains versus the euro, lifted by escalating concerns over debt in some eurozone economies and by a report suggesting US monetary easing may be tempered. The precious metal remained supported near $1,400 an ounce, however, as jitters over the outlook for the eurozone boosted interest in gold as a safe store of value.
Spot gold fell to a session low of $1,397.75 an ounce and was at $1,401.20 at 1531 GMT versus $1,402.70 late on Wednesday. Earlier it reached a high of $1,417.80 an ounce, close to the record $1,424.10 an ounce it hit earlier this week. US gold futures for December delivery rose 80 cents to $1,400.10 an ounce. Gold tends to fall when the dollar rises, as this erodes the metal's appeal as an alternative investment, but in times of extreme risk aversion both assets can benefit.
VTB Capital analyst Andrey Kryuchenkov said that, while the precious metal is susceptible in the short term to losses in the dollar, in the longer run the increased focus on eurozone debt issues were likely to be positive for gold. "Now that we are clear on QE2 (the second round of US quantitative easing announced last week), the attention is back on the eurozone debt troubles, which is bullish for gold should risk aversion escalate from here," he said.
Irish and Portuguese debt premiums over German government bonds hit new highs on Thursday, pushing up other peripheral eurozone yields, as scepticism grew that Ireland could escape a Greek-style financial bailout. Doubts over Ireland's ability to repay its debts are overshadowing attempts at a G20 summit in Seoul to ease currency tensions and secure commitment to more balanced global growth.
"Our FX strategists note the dollar has been the best performing currency so far this week given better-than-expected US macro data and Treasury auction results pushing US yields higher," said Barclays Capital in a note. Among other precious metals, silver was at $27.14 an ounce against $27.20. Holdings of the iShares Silver Trust, the world's largest silver exchange-traded fund, rose 3.4 percent to a record 10,718.82 tonnes by November 10, it said.
"At 40.6 million ounces over the past five business days, global ETF investment enjoyed its largest absolute one-week increase since the first week of the first-ever contract (iShares) in April 2006," said UBS analyst Edel Tully in a note. "The increase in ETF holdings is the most visible sign of current investor support for silver."
The ratio of gold to silver - the number of ounces of silver needed to buy an ounce of gold - slipped back towards the 2-1/2 year low near 50 it reached earlier this week. Elsewhere platinum was at $1,741.50 an ounce against $1,735.99, while palladium was at $704.97 versus $699. Palladium was the biggest riser among other precious metals on Thursday, up nearly 1 percent, but it was well off the 9-1/2 year high at $740.72 an ounce it hit on Tuesday.
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