A weak dollar, record oil prices and geo-political tensions helped gold to a 28-year high on Friday while platinum hit a record peak, but bullion's gains were erased as investors took profits. The US currency pared losses after hitting a record low versus the euro, taking a little polish off dollar-priced gold's appeal for non-US buyers.
Gold is also seen as a hedge against oil-led inflation, but crude prices fell from a record high above $90 a barrel. Spot gold hit a high of $770 an ounce - last seen in January 1980, before reversing gains to $762.30/762.80 by 1527 GMT, against $763.90/764.70 qte in New York on Thursday. "Gold is down on the back of weaker oil and a stronger dollar - its profit-taking ahead of the weekend," said David Thurtell, analyst at BNP Paribas.
Gold has gained some 20 percent this year on fund buying driven by favourable currency fundamentals and sharp rises in oil that highlight the metal's role as a hedge against inflation. More recently it has gained from geo-political tension between Turkey and northern Iraq and the bombing in Pakistan.
Analysts have said that if those factors stay intact, bullion should easily rally to the psychologically-key $800 level hit in January 1980 when gold hit a record $850 per ounce.
But Stephen Briggs, economist at SGCIB, injected a note of caution due to extreme speculative positioning on the US futures market that pointed to the possibility of a sizeable correction before another push higher. "You have to believe there will be a substantial correction before the $800 level," he said.
PLATINUM OFF PEAK: Profit taking also saw platinum come off record highs hit above $1,450 but persistent supply worries were seen nagging the market further, leaving room for fresh gains. Anglo Platinum, the world's biggest producer, said it expects to lose up to 1,300 ounces of refined platinum a day after it closed two more shafts at its largest mine.
Dealers and analysts said concerns over supply due to accidents and possible strike action had pushed up one-month lending rates in the past month to between 5-6 percent - another factor propelling the spot price higher. Spot platinum hit a record high of $1,454 before pulling back to $1,443/1,448 an ounce, versus $1,438/1,443 in New York.
"The very real threat of strike action is making it difficult from traders to go short, and should lease rates tighten further we could well see spot prices push on towards $1500/oz," said analyst James Moore of TheBullionDesk.com.
In other bullion markets, the benchmark August 2008 contract on the Tokyo Commodity Exchange closed 3 yen per gram higher at 2,873 yen after trading as high as 2,883 yen. US gold futures fell, with the December contract trading down $2.60 an ounce to $766.00. Bullion dealers in Singapore noted sales of scrap from jewellers and other holders who cashed in on gold's rally.
In India, the world's top gold consumer, buyers were hoping for a price correction. Indians consider gold an auspicious metal and offer it as a gift during festivals and weddings. Palladium fell $3 to $366/370, while silver was down at $13.42/13.47, against $13.74/13.79 in New York.