Gold and platinum prices slipped in European trade on Wednesday and were seen consolidating around current levels for some time before marching again towards the previous day's historic peaks. Bullish sentiments continued to prevail amid inflation worries and strong physical demand in key sectors, dealers said.
"The market is remarkably robust but I think it is just going to settle down in this region, consolidating and probably have a pull back towards $485 level," said David Holmes, vice president of commodities at RBC Capital Markets.
"Once we have some of these positions reshuffled, in 2006 we are still looking for the price to move higher because this is a part of a shift from paper into physical."
Gold topped $500 on Tuesday for the first time since December 1987, hitting a high of $502.30, largely on fund buying. Platinum had tracked gold to cross its own frontier to $1,002 an ounce, the highest in 26 years.
Spot gold fell as low as $491.50 before rebounding to $495.30/$495.6.10 by 1540 GMT, still below $499.70/$500.50 last quoted in New York on Tuesday.
"Near-term volatility can be expected given that $500 is an important psychological level," Barclays Capital said.
"But we think positive sentiment among the speculative community is still intact, and there is further room on the upside as long as key technical levels in the low $490 are held," it said in a daily report.
Terrorist attacks, oil-fuelled inflation worries, the prospect of more demand and reports that Russia, Argentina and South Africa have decided to increase the amount of gold in their reserves have elevated gold's safe-haven appeal this year.
At the high, gold was up 15 percent this year.
Some industry experts even said there were good chances for gold spiking by about 70 percent to surpass its all-time high of $850 an ounce in the next two to three years.
"The general consensus is that risk premium for many assets is far too low. Investors in general are just looking for places to put their money other than traditional sites," Holmes said.
But the weight of long positions in New York's COMEX market would weigh on sentiment on concern that the holders of those positions would start selling, some analysts said.
The latest weekly Commitments of Traders report issued by the Commodity Futures Trading Commission on Monday showed that speculative net long position in New York's COMEX gold were close to record high levels.
"I think the market is struggling a little bit here below $500 and I think there is quite a lot of resistance between $500 and $503," said an European precious metals trader.
"Fundamental buying of jewellery has been much reduced and high prices are in the hands of investors."
But Middle East consumers were betting on higher prices and showing no sign of liquidating jewellery investments. Low levels of gold recycling pointed to strong consumer confidence, industry officials said.
Platinum fell 1.7 percent to $975/980 an ounce from $992/995 in New York on Tuesday, but some dealers said further price falls could be limited due to its bullish outlook.
Precious metal refiner Johnson Matthey said in a recent report that 6.71 million ounces of platinum would be used in 2005, exceeding supply of 6.59 million ounces as demand rises from the auto sector and other industries.
Palladium fell to $256/$260 an ounce from $263/$267.
Silver eased to $8.22/$8.24 from $8.30/$8.32 an ounce late in New York. It rose to $8.36 earlier this week, its highest since April 2004.
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