Gold bounced more than 2 percent on Friday as US equities recovered after the Federal Reserve injected cash into the banking system to calm markets, analysts said. Gold rose as high as $676.50 an ounce after earlier falling to $658.10, the lowest since July 27. It was at $673.30/673.90 at 1537 GMT, up sharply from $661.20/662.00 late in New York.
Some analysts felt bullion would remain vulnerable due to jitters in the wider financial markets. In recent months, gold has shed its traditional safe-haven role and behaved much like other financial assets as for some investors its has become just another investment in a broadly diversified portfolio. When investors trim their positions in financial and commodity markets, gold holdings are also cut.
"The European Central Bank and the Federal Reserve are doing their best to reassure markets by injecting cash," Tom Kendall, metals strategist at Mitsubishi Corporation, said. "This latest mini rally in the US dollar appears to be running out of steam. In general, no-one likes to be short of gold going into the weekend," he said. The dollar fell against the euro on Friday, making gold cheaper for holders of other currencies.
US stocks pulled back sharply from the morning's plunge after the Federal Reserve injected cash into the banking system for the second time today, but they were will still down due to fears about the extent of losses from US subprime mortgages. The Fed also took the unusual step of making a rare statement after the first operation - the first time it has done so since the September 11, 2001, terror attacks - in an effort to calm investors' fears.
Central banks world-wide have now injected at least US $323.3 billion in the past 48 hours to prevent markets from spinning into a global liquidity crunch. "People have seen today that the European Central Bank has poured...euros into the (banking) system, which is positive for gold," said Christoph Eibl, head of trading at asset management firm Tiberius, which manages about $1.2 billion in commodity futures, 90 percent of which are long only.
"There was flight to cash selling yesterday, but the (gold) market held where it needed to and recovered," said Simon Weeks, head of precious metals trading at ScotiaMocatta.
In other precious metals, platinum hit a 6-week low of $1,260 an ounce before edging up to $1,273/1,276, against $1,269/1,273 in New York. Palladium was at $351/353 an ounce, compared to $359/362. Silver rose to $12.94/12.98 an ounce from $12.62/12.67 late in New York.