Gold slid around 2 percent on Friday, slipping further from this month's 28-year high as the market gave way to fund profit-taking for month- and year-end. Bullion also felt pressure from unfavourable fundamentals, with oil prices falling sharply, while the dollar gained ground.
Prices hit an intraday low of $779.40 last seen on November 20. Spot gold stood at $781.60/782.40 per troy ounce at 1559 GMT compared with $795.00/795.80 in New York on Thursday. Prices have fallen around 5 percent since hitting a two-week high of $836.70 on Monday, reflecting heightened volatility as prices were pulled between volatile oil and a strengthening dollar.
One month implied gold volatility has roughly doubled since August to more than 20 percent. The market has stalled twice so far in attempting to reach 28-year highs scored earlier this month at $845.40. "There's been a lot of adjustment of positions with some selling from some of the larger macro funds. Oil is also off and that has had a big influence as well," Mitsubushi analyst Tom Kendall said.
Oil tumbled to a one-month low on Friday below $89 a barrel , dulling gold's allure as a hedge against oil-led inflation, while the dollar rallied against the euro, making gold less attractive for non-US investors.
However, interest was emerging from speculators and jewellers at lower levels. "Dips should continue to find good support from both physical traders and investors seeking to add some form of safe-haven protection to their portfolios," said analyst James Moore of TheBullionDesk.com in a note to clients.
The easing of gold prices from near 28-year highs is tempting Indian gold buyers back to jewellery shops during the current marriage season. In other bullion markets, the COMEX February contract was trading down $14 at $788.30. The benchmark October 2008 contract on the Tokyo Commodity Exchange closed 29 yen per gram lower at 2,850 yen.
Federal Reserve Chairman Ben Bernanke said on Thursday a resurgence in financial strains in recent weeks had dimmed the outlook for the US economy, signalling an openness to again lowering interest rates. The Fed is seen trimming benchmark US interest rates by a quarter percentage point to 4.25 percent next month after it cut them by a cumulative three-quarters of a percentage point since September to cushion the economy from a severe housing slump and credit market turbulence.
Any further cut in US borrowing costs could be beneficial for gold as it dents the dollar's yield potential, drawing investors towards alternative assets. But some traders and analysts said gold may not have time over the remainder of this year for another run at the November highs or the record $850 seen in January 1980. "You'd like to think the market could go for $840/850 but it seems increasingly unlikely now, barring any major shocks," a senior trader said.
In other precious metals, platinum fell to $1,438/1,442 an ounce from $1,443/1,447 in New York on Thursday, but supply worries were seen as supportive with an expected strike over safety in top producer South Africa on December 4. Palladium was steady at $345/349, while silver fell with gold to $13.87/13.92 an ounce from $14.23/14.28 late in New York on Thursday.