Gold dropped early on Wednesday, snapping a two-day rise as weak US inflation data and a dollar rise prompted bullion investors to take profits after the previous session's six-week high. Bullion came under pressure after the US Labour Department said consumer prices rose marginally in September, and as the dollar index rose to a one-week high against a basket of major currencies on concerns over European banks.
"While there might still be some scope for further upside from here, these are likely to be ultimately capped by investors wanting to sell on rallies on the back of the overall macro picture," said Edel Tully, precious metals strategist at UBS. However, losses were limited as the weak US inflation outlook also allowed the Federal Reserve ample room to keep interest rates low for a while. In addition, uncertainty and chaos after a gunman shot and killed a soldier in the Canadian Parliament Hill Ottawa supported gold's safe-haven appeal.
Spot gold was down 0.4 percent at $1,244.79 an ounce by 1:48 pm EDT (1748 GMT). US COMEX gold futures for December delivery settled down $6.20 an ounce at $1,245.50, with trading volume in line with their 30-day average, preliminary Reuters data shows. While gold in the short term is hostage to moves in the wider markets, its resilience at the $1,180 level, which it earlier this month bounced off for a third time in the past 16 months, is reviving investors' interest in the metal, analysts said.
Gold buying in No 1 consumer China has weakened after prices rose earlier in the week, dealers said, while Indian demand is also likely to be lower following the festival of Diwali on Wednesday. China and India dominate the world physical gold market, accounting for more than half of global fabrication demand for the metal between them.
Silver was down 1.8 percent at $17.19 an ounce. China's silver imports were little changed in September at 243,071 kg, official customs data showed, while its palladium imports were up 5 percent at 2,050 kg last month and 28 percent year to date. Investors are expected to accumulate as much as 1 billion ounces of silver over the next decade, according to a report prepared by the CPM Group and released by the Silver Institute. Last year, net investment demand was about 100 million ounces, CPM data shows. Among platinum group metals, platinum dropped 0.8 percent to $1,265.75 an ounce, while palladium eased 0.1 percent to $770.80 an ounce. Official customs data showed China's platinum imports fell 18.5 percent in September to 8,615 kg, and were down by a similar percentage in the year to date.
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