Gold advanced on Wednesday to trade just below a 28-year peak, helped by a tumbling dollar and strong oil prices, but investors avoided big bets ahead of a key decision on US interest rates. Analysts said the metal was getting vulnerable to heavy corrections, but the move would depend on the currency and oil markets.
The metal fell in earlier business on profit taking, but price dips attracted fresh buying. "We can go higher if the Fed cuts interest rates. I will stick with my call for $800 gold in the fourth quarter," said Michael Widmer, director of research at investment bank Calyon.
"But people are still very long in gold. If you bet on a lower dollar and the Fed doesn't cut interest rates today, I can see that you are testing your target at around $730 probably again in the next few weeks."
A cut in interest rates tends to weaken the dollar and makes gold cheaper for other currency holders. Gold is also generally seen as a hedge against oil-led inflation.
Spot gold traded in a broad range of $776.70-$791.70 an ounce and was quoted at $791.00/791.60 by 1541 GMT, against $781.25/781.85 in New York late on Tuesday and Monday's peak of $794.40 - the highest level since January 1980. The metal was supported by the dollar, which hit a record low versus a basket of major currencies for the fourth trading day in a row, with investors poised for a US rate cut.
The Federal Reserve is seen cutting the fed funds rate by a quarter point to 4.5 percent later in the day and some reckon it could signal additional rate cuts in the post-decision statement. It cut by an aggressive half point last month.
Analysts said the metal was gradually becoming vulnerable. "We are running into a kind of speculative bubble here and volatility is getting higher and higher. We will come off," said Michael Kempinski, senior trader at Commerzbank.
"I don't say this will happen this week, next week or in a month, but signs are getting more and more clear that this is a bit overdone on the upside and it's time for consolidation." In other markets, the most-active December US gold contract rose $6.5 at $794.30 an ounce. The benchmark October 2008 gold futures in Tokyo closed up 5 yen per gram at 2,916 yen.
The bullion market got support from oil prices, which rallied to $93 a barrel after US weekly data showed that crude inventories fell by 3.9 million barrels, countering expectations for an increase. "Gold has staged a minor correction but not far enough to make us tactically bullish," UBS Investment Bank said in a note, referring to a decline in gold prices earlier in the day. "We would not ... short gold outright here, but would consider buying puts to protect core long positions or to profit from any long liquidation."
The bullion market was also helped by supply concerns, with South Africa's Gold Fields saying it had ceased blasting at its number 4 shaft at its Kloof mine for the rest of the day after two workers were killed in an accident.
Harmony Gold said a closure of one the biggest mines, owned by the company, after an accident would impact second quarter results. The Elandsrand mine is expected to reopen on November 19 after a loss of 48 days of production or 1,000 kg of gold. Around 200 miners were killed in accidents at South African mines last year.
The country's biggest mineworkers union has said it wants its members to down tools some time in November with the aim of forcing companies to focus on the safety issue. Silver rose to $14.44/14.49 from $14.18/14.22 an ounce in New York, palladium gained $2 to $369/373 and platinum increased $3 to $1,441/1,445 an ounce.