Gold fell more than 1 percent on Wednesday as speculators booked profits and turned their attention to other asset classes, but strong oil prices limited declines, analysts said. Spot bullion traded up to $881.05 an ounce earlier in the day, but slipped to $867.35/868.05 by 1513 GMT, against $877.40/878.60 late in New York on Tuesday and a record high of $1,030.80 on March 17.
"Profit-taking is driving things ... but the market is holding because of oil which has been hitting a new record every day," said Adrien Biondi, global head of precious metals at Commerzbank. "I think if oil wouldn't be as high, gold would be lower," he said. A rise in the dollar against the euro following weaker -than-expected retail sales for the euro area weighed on sentiment while expectations US rate cuts may soon cease lowered the metal's appeal as an alternative investment.
All eyes were trained on the European Central Bank, which at a meeting on Thursday is expected to hold interest rates steady at 4 percent. "Tomorrow's ECB rate-setting meeting might reverse the euro/dollar move, but another test of downside support around $850 now appears more likely for gold in the short-term rather than a push to $900," said Tom Kendall, metals strategist at Mitsubishi Corporation. Some analysts said gold would look at other markets for short-term direction.
"Should oil stabilise or slip back, then we would expect gold prices to ease in the coming weeks. However, any weakening of the dollar or severe escalation in oil prices would quickly result in high gold prices," investment bank Fairfax said in a report.
Analysts said a rise in gold holdings in the world's top exchange traded fund for bullion, StreetTRACKS Gold Shares, suggested physical investors were putting their money back into gold after it fell to a four-month low of $845 last week. Gold held in StreetTRACKS rose to 584.44 tonnes from 580.45 tonnes last week but this was still down from a record of 663.83 tonnes in mid-March.
Still, other analysts said some investors pulled out of gold on Wednesday to allocate more funds to asset classes such as equities. In other markets, gold futures for June delivery on the COMEX division of the New York Mercantile Exchange fell $9.3 an ounce to $868.30 an ounce.
Spot platinum steadied at $1,950.00/$1,970.00 an ounce from $1,947.50/1,967.50 late on Tuesday, while silver fell to $16.57/16.63 an ounce from $16.84/16.91. Palladium fell to $417.00/425.00 an ounce from $427.50/435.50.