Gold fell on Wednesday after two days of gains as US data allayed some concern about growth, while fears over the risk Ireland's debt crisis poses to other eurozone economies sent gold in euros to five-month highs. US data showed consumer inflation fell to a record low last month, while spending rose and consumers' mood improved. The dollar fell against a basket of currencies, reflecting a degree of risk appetite among investors, who pushed up the euro for the first time in three days.
While this would normally boost gold, the metal's traditional inverse relation to the US currency is at its lowest in two months, meaning it is more likely to move in tandem with the greenback. Spot gold fell 0.2 percent to $1,373.95 an ounce by 1552 GMT, down from an earlier session high at $1,381.30, while US gold futures fell $3.4 to $1,374.20. The euro recovered from two-month lows on Wednesday as investors shook off some of the fear that has driven spreads on peripheral euro zone bonds such as Portugal and Spain to record highs, which in turn briefly sent gold priced in euros to its highest level since early June.
"I do think, however you look at it, it's going to have rest and a consolidation for a while, and as we speak, it trades (near) an all-time high in non-dollar terms," said Charles Morris a fund manager at HSBC Global Asset Management. Gold's negative correlation to the dollar reached its weakest since mid-September as investors ditched the euro and other risk-related assets such as stocks and corporate debt.
"Gold's been gritting its teeth in the last couple of days and going contrary to what one might have expected with the dollar move, and really that has to boil down to the uncertainty," said Ole Hansen, a senior manager at Saxo Bank. An exchange of military fire between North and South Korea on Tuesday has further unsettled investors, putting Asian stocks under pressure and encouraging a sweep into perceived safe havens such as gold, government bonds and the Swiss franc.
Holdings of gold in the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, were unchanged for a second day, indicating no large-scale withdrawal from gold by investors. Silver fell 0.2 percent on the day to $27.40, even as holdings of silver in the world's largest physically-backed exchange-traded fund rose to a third consecutive record high, indicating robust demand for an alternate investment from gold. Platinum rose 0.9 percent to $1,661.74 an ounce, recovering from two straight days of declines, while palladium broke a two-day decline and rose 1.2 percent to $694.47.
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