Gold futures ended at 3-1/2-month lows for a second straight day Friday on currency-based selling and the potential for gold sales or revaluation by the International Monetary Fund (IMF), analysts and traders said. April delivery gold at the New York Mercantile Exchange's COMEX division fell $2.60 to $415.90 an ounce, after dealing from $419.50 to $415.50, which was the contract's cheapest since Oct. 13.
A weakening euro versus the dollar throughout the day and talk of central bank selling in gold, as well as concerns over possible sales from IMF reserves, were the main drivers behind the slippage.
The dollar rallied after Federal Reserve Chairman Alan Greenspan said market forces and tighter US fiscal policy should stabilise and may cut the US current account gap.
The euro fell to its lowest level in almost three months, below $1.2900, from $1.2965 late on Thursday.
A higher dollar makes dollar-denominated gold less affordable for non-US investors.
The United States has ruled out a proposal to use some of the IMF's gold reserves for Third World debt relief, but Canada says the plan was not yet dead.
Britain's finance minister, Gordon Brown, the host of a Group of Seven economic powers summit this weekend, says he has support of European G7 partners for his proposals to cut the debt of emerging, especially African, nations.
"Today was mainly currency-related, but I think there was still some residual unease over statements by Brown concerning the IMF gold reserves," Refco metals analyst Tom Boustead said.
"I think that, en masse, the market probably feels that, if anything happens, there will probably be a revaluation rather than an actual sale," Boustead said. "If there's a revaluation, I think the market takes it well; if there's a sale, that's negative."
After gold's New York close, IMF Managing Director Rodrigo Rato said there were clear ways to sell gold effectively, if IMF shareholders decide to proceed.
"Certainly, we have done it before and we think there are clear ways to do it that will be the most effective from a financial point of view," Rato told reporters as he left to attend a G7 dinner.
Rato said he was not providing his opinion on whether the IMF should sell gold to finance a debt relief plan.
"(Selling reserves) would take a long time to happen, but just the idea they would sell it has put the tone of the market from being overly bullish and dollar bearish to where the dollar is strengthening a little bit," said Andy Brosoff at Mitsubishi International Corp.
Brosoff saw the $400 mark as key near-term chart support.
Dealers also said there seemed to be some central bank selling Thursday and Friday.
"We traded at our high near $460 in early December, and now we have broken below $420 and almost touched $415. Yeah, it's time for the central banks to be selling," one broker at a futures commission merchant in New York said.
But, he added, buyers were likely to show interest in gold between $400 and $420.
Spot gold priced at $415.20/5.00, against Thursday's late level in New York at $416.40/7.20. The afternoon fix in London was $415.90.
March silver fell 4.2 cents to close at $6.635 an ounce, trading between $6.71 and $6.605. Spot hit $6.61/64, off from $6.65/67 previously. Friday's fix was at $6.655.
April platinum lost 80 cents to $866 an ounce. Spot platinum last changed hands at $862/866.
March palladium fell $1.45 to $182.05 an ounce. Spot stood at $180/184.