Gold fell 1.2 percent as the euro declined further against the dollar after US home sales data, extending losses made after the European Central Bank reinforced the view that eurozone interest rates will stay low. Speaking at a press conference after the ECB opted to leave rates at a record low 1.0 percent, the bank's president Jean-Claude Trichet was seen to reiterate that no hike in eurozone rates is imminent.
Spot gold was bid at $1,128.50 an ounce at 1551 GMT against $1,139.35 late in New York on Wednesday, having earlier slipped as low as $1,125.70. US gold futures for April delivery on the COMEX division of the New York Mercantile Exchange fell $14.00 to $1,129.30 an ounce. "There is still a link on a day-to-day and weekly basis between gold and the dollar, so if the euro weakens gold will come under pressure," said Standard Bank analyst Walter de Wet. "We might test down towards $1,100 if the euro goes to $1.30."
"But ultimately, the currency effect is a shorter term thing," he said. "As long as interest rates are lower, gold's path is higher." As gold is a non-interest bearing asset, it tends to benefit from a low interest rate environment, which reduces the opportunity cost of holding the precious metal.
Gold tends to track crude prices, as the metal can be bought as a hedge against oil-led inflation. European shares turned lower, giving up gains they made after data showed the number of US workers filing new applications for unemployment insurance fell last week. The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings stood at 1,115.511 tonnes as of March 3, up from 1,111.556 tonnes in the previous business day.
Data showed the US Mint's gold coin sales fell 17.8 percent in the first two months of the year to 169,000 ounces from 205,500 ounces a year earlier. Silver was at $17.13 an ounce versus $17.17, platinum was at $1,568.50 an ounce versus $1,575.50, and palladium at $453 against $446.50.
Investment demand for platinum and palladium should add to a recovery in buying by industrial users - primarily carmakers - this year, analysts said. "So far this year US-based physically backed platinum ETFs have attracted around $400 million from investors, and we expect these investment flows to continue given how recently this fund was started," said Natixis in a note on Thursday. "We also expect automakers will be restocking in 2010 given last year's production cuts when the car scrappage programmes reduced inventory levels substantially," it added.
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