Gold eased on Wednesday, declining after Tuesday's rally as a rise in the dollar, worries over a euro zone recession and doubts over the bailout of Greece prompted investors to take profits. Platinum prices rose nearly 2 percent to a five-month high due to supply concerns driven by a labour dispute in South Africa, the world's top platinum producer.
Even though gold rallied to a two-week high on Tuesday after Europe struck a rescue package for Greece, deep doubts remained about the country's ability to avoid a default in the long run which would likely drag gold lower with other assets. "The greatest risk to the downside that we see for gold is a fresh Greek crisis," said James Steel, chief commodity analyst at HSBC.
However, the possibility of further monetary easing and strong physical gold demand from China should underpin gold prices, Steel said. Spot gold was down 0.3 percent at $1,754.70 an ounce by 11:42 am EST (1642 GMT). US gold futures for April delivery were down $2.30 an ounce at $1,756.20.
Bullion fell along with US equities as data showing the euro zone economy was teetering on the brink of recession offset an encouraging report on US existing home sales. Surveys of purchasing managers showed unexpectedly weak activity and a shrinking services sector in euro zone's top economies Germany and France, tempering a wave of optimism after a new bailout deal for Greece struck this week. "The Greek bailout was mostly priced in," said VTB Capital analyst Andrey Kryuchenkov. "The latest rebound has run out of steam, so we are consolidating today with little direction."
Goldman Sachs said gold is expected to continue benefiting from low US interest rates and an improvement in US dollar funding for European banks. Goldman reiterated its positive 12-month target for gold at $1,940 an ounce, which would surpass a record of $1,920 set in September 2011.
Bullion has benefited from news that China recently cut its required reserve ratio and committed to help the euro bloc. News that China's central bank might have bought gold to add to its reserves also improved sentiment. Among other precious metals, silver was down 0.6 percent at $34.10 an ounce. Spot platinum was up 1.9 percent at $1,715.24 an ounce, while spot palladium was up 1.3 percent at $716.97 an ounce.
Platinum prices rallied to a five-month high at $1,718 an ounce, lifted by ongoing labour unrest at one of the world's biggest platinum mines, Impala Platinum's Rustenburg facility. Implats has warned customers that its April platinum deliveries would be down by a half. Platinum narrowed its historically unprecedented discount to gold to around $40 from $230 in January.
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