Gold pared gains sharply early on Wednesday to trade only slightly higher after bullion failed to break its one-week high at $1,220 an ounce following a rally driven by global economic worries. Despite the small gain, the metal is on track for a third consecutive daily rise. On Tuesday, investors bought gold after the International Monetary Fund cut its global economic growth forecasts and weak German industrial data stoked further concerns.
However, bullion nearly gave up its early gains on Wednesday as US crude futures tumbled and the dollar index erased its early losses, hovering near a four-year high. "Despite a pause in the recent sell-off for gold and the possibility of a short-covering rally, the bullish outlook on the US dollar is likely to constrain any potential bullion rallies," said James Steel, chief metals analyst at HSBC.
Spot gold was up 0.1 percent at $1,209.59 an ounce by 11:14 am EDT (1514 GMT), after touching a high of $1,220.60. US COMEX gold futures for December delivery were down 90 cents an ounce at $1,211.50. Gold prices have been underpinned as world share indexes have pushed towards their lowest in six months while German bond yields have slid towards record lows as concerns over global growth spurred demand for safe-haven debt.
Markets will be eyeing minutes of the Fed's latest policy meeting due later on Wednesday for clues on when the US central bank could raise interest rates. Higher rates would dent demand for gold, a non-interest-bearing asset. As Chinese markets returned from a one-week holiday on Wednesday, traders said the metal could benefit from fresh physical demand. Bullion investors were keenly watching the Shanghai Gold Exchange to gauge buying interest in China, the top consumer of the metal.
Premiums on the exchange, the platform for all physical trades in China, were about $5-$6 an ounce above global spot prices on Wednesday, compared with about $3 before Chinese markets closed for the holiday. Silver was unchanged at $17.14 an ounce, while palladium rose 1.7 percent to $792.50 an ounce and platinum climbed 1.2 percent to $1,266.75 an ounce. Platinum tumbled to a five-year low at $1,183.25 on Monday as gold prices weakened but has since seen a solid rebound. It is currently up 4.3 percent this week, and is on track for its biggest weekly rise in a year if those gains are sustained.
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