Precious metals prices came off their highs in Europe on Tuesday afternoon, with gold and platinum down from respective 15- and 24-year highs as the bruised dollar crawled off the floor to prompt some profit-taking, traders said.
The price of gold was fixed at $424.40 an ounce this afternoon, down from the morning's $428.00, while platinum was set at $848.00 an ounce, against the earlier $850.00.
"It got very over-extended this morning...but while the dollar stays weak people will be generally reluctant to sell gold," a trader said.
On Tuesday the dollar sank to 11-year lows against sterling and new record lows against the euro, trading down to $1.2812 at one point before reversing back to $1.2750.
"The generic reason (strong gold) is dollar weakness - especially after the speech by (US Federal Reserve Governor Ben) Bernanke on Sunday," analyst Andy Smith of broker Mitsui Bussan Commodities said. "This was a green light for everything priced in dollars."
Bernanke said that while the sluggish US economy appeared to have turned a corner, it was right to hold interest rates at 45-year lows given the low rate of inflation. The prospect of interest rates remaining low tends to encourage investment outflows from the dollar to higher-yielding currencies and assets.
"Much continues to depend on the path of the euro but if the relationship continues as it has since 2002, then a euro of 1.40 would push gold towards $450 and the current momentum suggests one should be very wary of betting against that," Barclays Capital analyst Ingrid Sternby said.
Gold rose about 20 percent in 2003 as geo-political tensions and a sliding dollar raised its safe-haven status. A weaker dollar also makes dollar-denominated gold cheaper for holders of other currencies, especially the surging euro.
Spot gold, which hit a high of $430.50, settled back to $422.40/422.90 by 1537 GMT, still up from the New York close on Monday of $421.70/422.50.
Analysts said fresh investment-fund buying had been attracted by the wider trends in commodity markets, with base metals, such as copper, nickel, tin and zinc all at multiyear highs.
Technically bullion was looking overbought, which should force it lower, but that was having little impact on prices as successive rises - gold is up some $15 already in the new year - are sucking in fresh chart-based fund buying, Mitsui Bussan's Smith noted.
"The market is cautiously bullish. Around here, it will go lower - back into the teens, say $417, then head back up towards $440," another trader said.
In other precious metals, platinum, which briefly dropped below $800.00 in late December, was lifted by gold to test levels above $850.00.
Analysts said platinum's fundamentals were strong, with worries over supply combining with economic recovery to underpin the market. One of the metal's main uses is in vehicle catalytic converters to cleanse noxious exhaust fumes.
The fresh buying seen in Europe is likely to bring a test of levels up to $860.00 in the next few days, analyst James Moore of TheBullionDesk.com said.
Spot platinum was at $844.00/848, up from the overnight New York close of $838.00/843.00. Sister metal palladium was relatively static, indicated at $199.00/203.00, versus $199.50/205.50.
However, silver hit a 5-3/4 year high of $6.39 at one stage, then eased to $6.30/6.32.