Gold fell more than 2 percent on Tuesday as the dollar rose after comments by US Treasury secretary Henry Paulson. Paulson reiterated he would be prepared to intervene in currency markets to underpin the dollar.
Gold slipped to a session low of $871.50 an ounce as the dollar strengthened, against $894.00/896.00 late in New York on Monday. At 1505 GMT, it was trading at $872.25/873.25. "The dollar is the main reason," said Standard Chartered analyst Dan Smith. "The correlation between the dollar and gold remains strong and remains an important influence."
US Federal Reserve chairman Ben Bernanke on Tuesday reiterated concerns about the outlook for inflation. Such a move could halt the dollar's fall, denting gold's appeal as an alternative investment to the US currency. Weakness in the dollar, which also spurs buying of gold as a currency hedge, was a primary factor in pushing the precious metal to a new all-time high of $1,030.50 an ounce earlier this year.
But the dollar has received a boost over the last week from the Federal Reserve's increased focus on inflation, which has raised expectations a rate hike may be forthcoming.
Increased worries about inflation are likely to underpin gold prices in the longer term, J.P. Morgan analyst Michael Jansen said, as the precious metal is typically bought as a hedge against rising prices. Spot platinum meanwhile slipped to $2,018.00/2,038.00 from $2,037.50/2,057.50 late in New York, largely tracking gold and other markets. Among other precious metals, palladium edged up to $423.00/431.00, while silver was trading at $16.71/16.77 against $17.07/17.14.
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