Gold eased on Tuesday as a recovery in the dollar and weakening oil prices pulled the precious metal from its earlier highs. However, investors worried about the outlook for the US economy are still buying into the precious metal as a safe haven from financial risk, limiting losses.
"Gold is still reacting to ongoing concern over the economic outlook," said Standard Chartered analyst Daniel Smith. "People continue to be in gold for its safe haven status." Spot gold slipped to $959.10/960.10 an ounce at 1423 GMT from $961.75/963.15 an ounce late in New York on Monday.
The dollar strengthened in early afternoon trade, helped by weaker US crude futures and comments from US Treasury Secretary Henry Paulson that suggested efforts are being made by the government to solve the financial crisis.
Strength in the US currency pressures gold, as it reduces the precious metal's appeal as a currency hedge. A firmer greenback also makes the precious metal more expensive for holders of other currencies. Oil also helped pull gold from its highs, as crude futures slipped. Concerns over the impact of tropical storm Dolly, which it was feared would hit oil installations in the Gulf of Mexico, are easing.
Investment interest in the precious metals is firm, with holdings of the SPDR Gold Trust in New York - the largest gold-backed exchange-traded fund - rising to 705.59 tonnes on Monday, close to a record high.
Silver holdings of the United States' largest silver-backed ETF, iShares Silver Trust, were also at a record 6,092.31 tonnes on July 16, the last day for which holdings were published. "We see ETF (demand) holding up pretty well," said Smith. "The ETFs are pretty close to record highs."
Among other precious metals, platinum rebounded, climbing more than 2 percent to a session high of $1,880 an ounce, as South African power utility Eskom reported a further electricity outage. South Africa is the world's largest producer of platinum. Eskom said it has shut down one of two electricity generating units at its Koeberg nuclear power plant after a technical fault.
"Although this primarily impacts the Western Cape area and not the key mining provinces, it does increase the vulnerability of the power grid, especially as Eskom announced last week that its reserve margin was well below its target," said Barclays Capital in a note.
Spot platinum was trading at $1,852.00/1,872.00 an ounce against $1,837/1,857 in New York, recovering from an 11-week low of $1,825.50 it hit earlier in the session. Silver slipped to $18.29/18.25 an ounce from $18.35/18.43 late in New York. Spot palladium was steady at $412.00/420.00 an ounce from $410.50/418.50 late in New York.