Gold steadied on Thursday near the previous session's close as interest in the precious metal as a haven from risk supported prices after fluctuating in the wake of a rate cut by the European Central Bank. Spot gold rose to a session high of $820.60 an ounce immediately after interest rate cuts, before slipping to a low of $807. It was quoted at $811.50/813.50 an ounce at 1524 GMT from $810.55 in New York late on Wednesday.
Gold, often seen as a secure store of value in times of turmoil, is benefiting from the fear triggered by a spate of poor economic data and bad news from banks that has raised the prospect of a prolonged recession. "Investors are buying into gold as a hedge against inflation and turmoil in the financial markets," Deutsche Bank trader Michael Blumenroth said. "(They think) maybe the worst is not over."
The ECB cut rates for the fourth month in a row by 50 basis points. The decision initially pressured the euro but the single currency quickly bounced back as traders expect the cut to leave the door open for further cuts. However, lower oil prices are putting some pressure on gold. Bullion typically moves in line with crude, as it is often bought as an inflation hedge, and the direction of the oil market is an indicator of interest in commodities.
Investor interest in gold remains strong. Bullion holdings of the SPDR Gold Trust in New York, the world's largest gold-backed exchange-traded fund, rose to a record for the second time this year. Demand for gold in India, the world's largest bullion market, was also picking up as prices fall, dealers said. On the supply side, South African gold output fell 8.7 percent in volume terms in November 2008 from a year before.
The country's gold output has fallen since the electricity grid suffered a near collapse last January. Metals consultancy GFMS said in the second update of its 2008 Gold Survey on Thursday that gold could revisit its record high above $1,000 an ounce by the end of June as government fiscal stimulus efforts undermine the greenback. GFMS said it sees gold averaging $915 an ounce in the first half of 2009, up from an average $871.96 last year.
Among other precious metals, spot silver was quoted at $10.40/10.48 an ounce against $10.54 in New York late on Wednesday. Platinum and palladium prices also fell. The platinum group metals, which are mainly used in car manufacturing, have fallen dramatically from their highs of early 2008 as the auto sector has come under pressure. Spot platinum slipped to $920/930 an ounce from $933 late in New York on Wednesday, while palladium fell to $176.50/181.50 an ounce from $180.50.