Gold extended gains on Thursday on firmer oil and bargain hunting after this week's drop to a three-week low, but trading was muted as investors watched movements in the dollar ahead of a US Federal Reserve meeting. Spot gold hit an intraday high of $893.00 an ounce, driven by purchases from Japanese investors and jewellery makers.
It later stood at $892.20/892.90 an ounce, up from $884.75/885.45 late in New York on Wednesday. "The market is confined into a very narrow range. There's a little bit of demand for physical in Asia," said Ellison Chu, senior manager at Standard Bank London in Hong Kong.
"I think the topside is back to around $900. The downside is $880. People are waiting for more direction in the US dollar," he said. Oil prices bounced on Thursday, after a late surge in US stock indices helped calm fears of a recession in top energy consumer the United States.
Higher oil lifts gold's appeal as a hedge against inflation. Gold tumbled to its lowest in three weeks to $849.50 an ounce on Tuesday before a surprise rate cut by the Fed sparked a rebound.
A Reuters global poll of 50 traders and analysts showed that they the forecast average gold prices surging more than 20 percent this year and gold retaining most gains in 2009 as dollar weakness, market turmoil and inflation fears stoke investor interest. The Fed on Tuesday cut benchmark interest rates by three-quarters of a percentage point - the biggest rate cut in more than 23 years - in an emergency bid to boost a US economy that some fear is on the verge of recession.
Fed policy makers are scheduled to meet on January 29-30. "Although the short-term volatility of the gold market is very high, the mid-term to long-term outlook is still very bullish," said William Kwan, a dealer at Phillip Futures in Singapore.
"That's why gold is still trying the $900 level, although we can see the downside is not too far away," said Kwan, who pegged support at $875 an ounce.
The benchmark gold futures contract on the Tokyo Commodity Exchange ended 5 yen per gram lower at 3,066 yen after volatile trade. Gold hit a record high at $914 an ounce on January 14 on expectations of a sharp cut in US interest rates and turmoil in the financial markets triggered by a mortgage-related crisis.
COMEX gold futures rebounded, with the most active February contract rising $8.8 an ounce to $891.9. The dollar slipped to 106.24 yen from late New York trading. On Wednesday, the dollar fell to a 2-«year low of 104.95 yen on electronic trading platform EBS. The euro edged down to $1.4614. Platinum rose to $1,571.50/1,576.50 an ounce from $1,551.50/1,556.50 an ounce late in New York. Silver edged up to $16.05/16.10 an ounce from $15.97/16.02. Palladium rose to $365/369 an ounce from $362.50/367.50.