Gold firmed on Wednesday, shrugging off a 2 percent rise in the dollar versus the euro, as concerns over the outlook for the US economy and the potential for further monetary easing sparked haven buying of the metal. Spot gold was bid at $1,203.10 an ounce at 1502 GMT, against $1,201.85 late in New York on Tuesday. US gold futures for December delivery climbed $7.50 to $1,205.50.
The metal rose as high as $1,207.05 on Tuesday after the Fed kept interest rates at record lows and signalled a policy shift away from cutting back on quantitative easing. Prices fell back below $1,200 early on Wednesday as the dollar rallied, however. The Fed said on Tuesday it would use cash from maturing mortgage bonds it holds to buy more government debt to help pin down borrowing costs.
"The initial reaction was a bit of a knee-jerk for both the dollar and gold, so gold went up and the dollar went off," said Credit Suisse analyst Tom Kendall. "And then this morning, sentiment seemed to reverse." The dollar rose against the euro, but slipped to a 15-year low against the yen as the Fed's steps to revive the US economy pushed US Treasury yields lower.
Among other commodities, oil prices fell 2 percent, weighed down by strength in the dollar, while base metals such as copper also slipped as the market mulled economic and demand growth prospects. Overall raw materials prices are being pressured by concerns over the Fed's lacklustre view on the US economy. This could support gold, however.
"If we see a period of significantly lower US growth then we would expect to see knock-on effects on the rest of the global economy, which seems to be a risk that is being underpriced," Barclays Capital said in a note. "Slower US growth should lead to dollar strength against most risky currencies," it added.
"Such an environment is likely to prove to be favourable for gold prices particularly given that the recent upside in prices was driven by the resurgence in safe-haven buying." Among other precious metals, silver was at $18.04 an ounce against $18.25, while platinum was at $1,528.45 an ounce against $1,539.50 and palladium was at $465.53 against $473.75.
Prices of the platinum group metals, which are primarily industrial in nature and are widely used in the automotive sector, have come under pressure from concerns about the pace of economic recovery. "Speculation (that) slowing industrial activity in the US and China will reduce auto demand is weighing on the PGMs," said James Moore, an analyst at TheBullionDesk.com, in a note.
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