Gold fell on Monday as hopes Hurricane Gustav would do less damage than first feared to the Louisiana coast bolstered the dollar and pressured oil prices. Platinum tumbled almost 4 percent as poor car sales and a slowing US economy weighed on the metal, which has fallen nearly 40 percent since hitting a lifetime high of $2,290 an ounce in March.
Gold was down at $821.30/822.70 an ounce by 1411 GMT from $830.35/832.35 an ounce late in New York on Friday. Now Gustav has been downgraded to a Category 2 hurricane, that's boosting the dollar and weakening oil, both of which are negative for gold," a Standard Bank trader said. Oil fell by almost $3 a barrel as Hurricane Gustav weakened shortly before making landfall.
The hurricane has forced the shutdown of nine refineries and nearly all US Gulf of Mexico oil production. The US dollar index rose to a year high, lessening the appeal of gold as an alternative to the dollar and making the metal more expensive for local currency holders. "Gold couldn't get back to $850 an ounce so it looks like we could try testing below $800 an ounce now," said Commerzbank trader Michael Kempinksi, citing weakness in oil prices and the dollar's recent strength.
But for the longer term, several analysts are bullish, with strong jewellery and gold coin demand expected to provide support for the yellow metal. Gold jewellery sales in Abu Dhabi soared 300 percent in volume and almost 250 percent in value in August from a year earlier after the metal dropped to nine-month lows, the emirate's industry group said on Monday.
"The first two weeks of August saw 60,000 gold coins sold in the US The US mint describes the activity as unprecedented as new retail investors enter the market," said Meridian Fund Managers in a research note. "India's festival season begins next week and should provide strong support to the price of the commodity throughout the fall," it said.
Barclays Capital analyst Suki Cooper said: "We've not seen much safe haven buying throughout August, however physical buying has started to pick-up again and futures prices are strengthening which suggests prices will be well supported above $800 an ounce." The metal dropped to a nine-month low of around $773 an ounce in mid-August before bouncing back, but it is still trading well below its all-time high of $1,030.80 an ounce hit in March.
Spot platinum fell as low as $1,418.50 an ounce, down from $1,474.50/1,494.50 in New York, with technical selling. The metal was last at $1,439/1,451. "I think demand is slow right now. There are still worries about the global economy, that's why they don't want to buy too much for the being," said Dick Poon, manager of precious metals at Heraeus Ltd. in Hong Kong. The bulk of the world's platinum is used by automakers in autocatalyst systems that scrub exhaust fumes of dangerous and environmentally damaging chemicals.
A sudden slowdown in car sales in China and India is threatening to shrink the global auto market this year, spelling tougher times for an industry leaning on the two most populous countries to pick up the slack in the West. Spot palladium eased to $297.00/303.00 an ounce from $303.00/341.00 an ounce. Silver fell to $13.43/13.49 an ounce from $13.58/13.68 an ounce late in New York.