Gold prices drifted lower on Friday and headed for their biggest monthly drop in more than 20 years as a strong dollar and recession fears triggered a sell-off, traders and analysts said.
Macroeconomic data on Thursday that showed the US economy had shrunk 0.3 percent, the sharpest fall in seven years, escalated recession worries and knocked down all commodities, including metals and oil.
Platinum fell almost 6 percent as slowing economies around the globe and the credit crisis caused the largest auto industry companies to slash full-year profit targets, warn of job losses and push for speedy government handouts.
Gold was at $725.10 an ounce by 1616 GMT, having trimmed losses after hitting a low of $720.70 an ounce, compared with $735.50 an ounce late on Thursday in New York. "Gold's moves today are mainly currency driven," said Simon Weeks, director of precious metals at the Bank of Nova Scotia. "At the month-end, flows are in favour of the dollar."
The dollar was firmer against most major currencies on expectations of large dollar demand for the end of the month. Gold tends to move in the opposite direction to the dollar as a strong US currency makes bullion more expensive for local currency holders. "The key driver for gold at the moment is the US dollar and it looks like it is going to strengthen again and that is definitely negative for gold," a London-based trader said.
US data released on Friday showed consumers cut their monthly spending for the first time in two years during September, evidently bracing for hard times as jobs continue to disappear and credit conditions tighten. The metal has lost as much as 21 percent of its value this month alone, and is down 12 percent this year, well below the record high of $1,030.80 struck in March.
It hit a 13-month low of $680.80 last week after investors sold bullion to pay for margin calls. A recovery in stock markets and firmer oil spurred a rebound in gold this week but technical selling emerged after did not sustain Thursday's high. Oil slipped for a second day, dropping more than 3 percent towards $64 a barrel and is set for its biggest monthly loss as weak US data rekindled demand worries, which, in theory, reduces gold's appeal as a hedge against inflation.
Platinum was trading at $807.50 ounce, after touching an intraday low of $770, down from $817.00 in New York. It has lost more than 60 percent of its value since hitting a lifetime high of $2,290 in March, mainly due to worries about falling demand for autocatalysts.
As the strong yen forced Japanese carmakers Mazda and Mitsubishi to slash full-year targets, struggling US automakers were looking to obtain billions from the US government to help them to survive. New York gold futures fell $8.4 an ounce to $730.9. Palladium was at $193.00 from $197.00, while spot silver was bucking the falling trend at $9.85 compared to Thursday's $9.66 late in New York.
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