Gold steadied in late trade on Wednesday after slipping, but remained vulnerable because of a firmer dollar and renewed pressure from stock markets on worries over the implications of the US subprime mortgage crisis.
Palladium fell to a five-month low and platinum declined to its lowest in more than two months before recovering. Gold was quoted at $669.40/670.00 an ounce by 1423 GMT after falling as low as $662, against $668.30/668.90 late in New York on Tuesday. The metal has fallen nearly four percent since hitting an 11-week high on July 24.
"Gold is suffering at the hands of a stronger greenback as the currency benefits from safe haven flows," David Thurtell, metals analyst at BNP Paribas, said. "Central banks are likely to be sellers over the next month or so. Physical demand is also low," he said, adding any drop in the price of gold to its 50-day moving average of $661.73 could trigger more selling.
The dollar advanced versus the euro as investors reduced exposure to carry trades amid persistent worries about credit markets. The dollar showed little reaction to a government report on consumer prices for July. A stronger dollar makes gold costlier for other currency holders and often lowers bullion demand.
Gold traditionally has been used by investors as protection against economic and political uncertainty. But in recent months it has behaved much like other financial assets because of the growing role of commodities in diversified portfolios.
Britain's leading share index fell 1.3 percent by midday as bank and financial stocks bore the brunt of fresh signs that the global credit markets were deteriorating further "We do not expect institutional buying of gold to trigger any sharp move higher, we suspect that position closing and de-leveraging will be the focus of these investors' attention," said John Reade, head of metals strategy at UBS Investment Bank.
"Rather any move to gold will probably come from private investors and as such the listed exchange-traded funds in gold will signal this interest," he wrote in a daily note.
US-based StreetTRACKS Gold Shares, the world's largest gold-backed exchange-traded fund (ETF), held record high gold at 510.21 tonnes on Tuesday. UBS noted that London-listed ETF Securities' gold fund saw a trebling of holdings last week to 331,420 ounces as nearly 200,000 ounces of gold was bought in one day. In industry news, the World Gold Council said global gold demand in the second quarter jumped 19 percent year-on-year to 922 tonnes as less volatile prices spurred jewellery buying in India and around the world.
Platinum recovered to $1,265/1,270 an ounce after falling to a 2-1/2-month low of $1,253.50, against $1,266.50/1,273.50 late in New York on Tuesday. "Platinum and palladium were hit by fears of the car industry slowing down, prompted by weak economic data from Europe and poor US car sales," Commerzbank analysts said. Palladium fell to a five-month low of $342 an ounce before rising to $345.50/349.50, against $349.50/353.50 in the US market. Silver fell to a six-week low of $12.32 an ounce and was last at $12.63/12.67, versus $12.69/12.72.