Gold on Monday plunged below $600 an ounce for the first time in more than two months, as investors weighed bullion's longer-term prospects in the face of a declining oil price.
"Some are asking about the need to hold gold as an inflation hedge if oil's going down," a bullion dealer said. Spot gold dropped 1.6 percent to $599.10/$600.10 an ounce, broadening last week's late losses.
Gold last sold for under $600 an ounce on June 30., when it cost as little as $596.85 an ounce. "We had expected more support at $600, but it didn't hold," another dealer said.
Oil prices slipped under $66 on Monday, adding to last week's slide on an improved US supply picture and signs of easing tension over Iran's nuclear programme.
Rising crude prices tend to spark inflationary concerns, sending some investors into safe-haven commodities, including gold. Oil prices continued a slide from Friday after the potential recovery of output from BP's giant Alaskan oil field followed US inventory data that showed growing fuel stockpiles, with traders now watching for Opec's decision on output levels.
The producers cartel meets on Monday in Vienna, with ministers saying on Sunday they were unlikely to change a high output policy that is helping steer prices lower, dimming gold's prospects for a quick turnaround, dealers said.
Gold opened in Sydney at $606.30/$607.30 an ounce. On Friday's fall was accelerated because of stop-loss selling as prices fell below key technical levels.
Gold has now fallen more than 6 percent after hitting a four-week high of $640.25 last on Wednesday. In May, gold rocketed to a quarter-century high of $730 an ounce.
In currencies, the euro struck a six-week low versus the dollar, with the US currency extending gains from late last week on a breach of key chart levels and a sell-off in commodities such as gold. The euro fell to $1.2647 on electronic trading platform EBS, it's lowest since late July. "The dollar's not helping gold much this," a dealer said.
Dealers said they had detected fund selling of long positions that could accelerate and trigger wider stop-loss orders now that gold had dropped below $600 an ounce.
Tokyo Commodity Exchange gold futures were hit, falling about 3 percent. The most active TOCOM August 2007 futures contract was down 82 yen at 2,272 yen ($19.43). Platinum dropped $7 to $1,213/$1,218 to an ounce, from $1,220/1,228 late in New York. Sister metal palladium was unchanged at $326/331 an ounce from $322/$327. Silver was down 25 cents, or 2.1 percent, at $11.81/11.88 an ounce, from $12.06/$12.13 late in New York.
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