Gold slipped by more than 2 percent on Tuesday as a firmer dollar and a calmer tone to stocks encouraged profit-taking, while the other precious metals tumbled in its wake. Spot gold was quoted at $879.80/881.80 at 1344 GMT against $903.25 an ounce at the nominal New York close on Monday. Earlier, it touched a session low of $879.70.
"In a situation where the dollar is strengthening against the euro, and the markets are calming down after yesterday's tension, you will see an impact on the precious metals," said Dresdner Kleinwort consultant Peter Fertig. The dollar rose more than half a percent against the euro as investors cut back on risky positions after a $700 billion emergency plan to rescue the troubled US financial sector was rejected by Congress late on Monday.
"Investors are starting to take their profits in the gold market," said Deutsche Bank trader Michael Blumenroth. "They don't want to leave it in any investment, they just want dollars." Safe haven assets such as treasury bills and gold soared on Monday in the wake of the rejection of the plan, with the precious metal rocketing nearly 5 percent to a two-month high of $920 an ounce.
However gold failed to hold gains, with the traditional safe-haven metal falling victim to selling pressure as investors took profits. But despite this, analysts said gold was still outperforming other assets. "Gold was the only precious metal to hold up yesterday. All the others were down," said Fertig. "All the metals with an industrial use, like platinum, palladium and silver, fell."
Investment demand appeared firm. The SPDR Gold Trust, the world's largest gold-backed exchange traded fund, saw an inflow of nearly 30 tonnes on Monday, which took its holdings to a record high of 752.2 tonnes. A poll of delegates to the London Bullion Market Association annual conference in Kyoto showed they believe spot gold will rise by about 6 percent to $958.60 by November 2009, while platinum and palladium prices are expected to soar.
The other precious metals also slipped sharply. Silver, platinum and palladium have not benefited as gold has from safe-haven buying. They have been battered by demand fears as investors worry about the outlook for global growth. Spot silver fell by nearly 5 percent to a session low of $12.40, before recovering to trade at $12.41/12.49 an ounce, against $13.07 at the nominal New York close on Monday.
The platinum group metals slipped sharply as investors worried about the outlook for demand from carmakers, who are major consumers of the metals for use in catalytic converters. Platinum fell almost 9 percent to a session low of $983.50 an ounce, its weakest level since February 2006, while palladium slipped to $194.50 an ounce, a new three-year low.
"Platinum is largely an industrial metal with its main market being in autocatalysts," Fairfax analyst John Meyer said. "Consequently, despite being a precious metal it does not benefit in the same way as gold does during periods of weakening economies." Spot platinum was down at $983.50/1,003.50 from $1,080 an ounce at the nominal New York close on Monday, while palladium fell to $194.50/202.50 from $211.50.
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