Gold rose 1 percent on Tuesday on a weaker dollar before paring gains, with investors waiting for a US interest-rate cut by the Federal Reserve to establish a clearer market direction. Bullion rose as high as $1,012.30 an ounce and was at $1,003.60/1,004.00 at 1522 GMT, against $1,001.00/1,001.80 late in New York on Monday.
It spiked to an historic high of $1,030.80 on Monday on concerns over the US financial sector and a weak dollar before profit-taking erased most of the gains.
"In general, gold's moves are related to the dollar and oil. Watch the euro, watch the oil price and also watch the quarterly results of banks," said Wolfgang Wrzesniok-Rossbach, head of sales at Heraeus, a German precious metals trading group.
"Gold is trading in a range, but at a pretty high level. I don't see it is going above the record level for the time being, but also no immediate crash here," he added. The dollar traded near record lows against the euro on expectations of a hefty Fed rate cut that will make the US currency the second lowest yielder among the G10 economies.
Expectations of rate cuts have deepened after J.P. Morgan's purchase of stricken rival Bear Stearns for a rock-bottom $2 a share and the Fed's emergency step of cutting its discount rate by 25 basis points on Sunday. The dollar remained under pressure, although it rebounded against the yen after stronger-than-expected results from Goldman Sachs and Lehman Brothers eased concerns about the health of the US financial sector.
A weaker dollar makes gold cheaper for holders of other currencies and often lifts bullion demand. The metal is also generally seen as a hedge against oil-led inflation. Oil prices rebounded on expectations that the US rate cut will hit the dollar and spur investment demand for oil. "The market is likely to continue to hold around yesterday's close ahead of the Fed rate meeting," said Suki Cooper, precious metals analyst at Barclays Capital.
"The current environment - inflation concerns, equity market movements and the general credit market concerns - is boosting prices, but the metal is primarily taking its lead from the dollar movement." Gold has gained more than 23 percent this year on fears of inflation as crude oil has hit records, expectations of further rate cuts and deepening US financial concerns. "If the Fed believes that in the due time economic crisis can be contained, then there could be marginal respite for dollar," said Pradeep Unni, analyst at Vision Commodities.
"Gold uptrend is intact, but there are high chances of a pull back after the decision. It is ideal to wait before fresh buying is attempted. High volatility is also likely," he said in a daily market note. High prices continued to hit physical demand. Gold imports by India, the world's largest consumer, plunged to 10 tonnes in February from 59 tonnes in the same month a year ago.
In other metals, platinum hit a 1-week low of $1,935 an ounce before rising to $1,990/2,000, against $1,980/1,990 in New York and off a record high of $2,290 hit on March 4 on a power crisis which hit mining in main producer South Africa.
Platinum was supported by news that South African power utility Eskom may have to inform mines of a force majeure if more of its generators trip, Eskom spokesman Andrew Etzinger told Reuters. Silver traded at $19.95/20.00 an ounce, versus $20.35/20.41 in New York, while spot palladium rose nearly 3 percent to $478/488 an ounce from $465/470.
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