Gold eased a touch on Wednesday as traders took profits after early gains, but held above $850 an ounce as interest in the metal as a haven from risk supported prices. Spot gold was at $851.05/852.65 an ounce at 1457 GMT against $855.20 late in New York on Tuesday.
US gold futures for February delivery on the COMEX division of the New York Mercantile Exchange eased $5.90 to $849.30 an ounce. The precious metal earlier hit a new record high in sterling terms of 626.43 pounds, according to Reuters data, as the currency languished. Investors are buying physical bullion as a haven from risk, according to analysts.
"Investors are switching to gold, but not in any form," said Barclays Capital analyst Suki Cooper. "Where we are really seeing an increase is in small bars and coins, and in the physically backed exchange-traded funds." A combination of underperformance in other assets, fears over economic growth and the falling interest rate environment are all boosting the appeal of gold, she added.
On the currency markets, the euro firmed a touch against the dollar, but analysts said gains were likely to be short-lived amid a spate of bad news from the eurozone economies. Gold looks likely to remain underpinned by buying from risk-averse investors as the economic outlook stays murky. Major banks Morgan Stanley and UBS on Wednesday upgraded their full-year gold price forecasts, citing safe-haven buying.
US bank Morgan Stanley raised its 2009 gold price forecast to $900 an ounce from $750 previously, and its 2010 price view to $1,000 from $825. UBS said it now sees gold at $900 an ounce in one month, against a previous forecast for $800, and at $850 an ounce in three months, also against $800.
"Our client flows suggest that the developments in the banking sector have truly spooked investors again, with strong demand for coins and small investment bars seen since the start of the week," said UBS strategist John Reade in a note. The world's largest gold-backed ETF, New York's SPDR Gold Trust, said its holdings rose 1 percent on Tuesday to breach the 800-tonne barrier for the first time ever.
In December SPDR took over from the Bank of Japan as the world's seventh largest holder of gold. With the economic outlook gloomy and worries about longer term inflation rife, investors' confidence in bullion is firm. "The next few months gold is likely to be very volatile," said Fairfax investment bank analyst John Meyer. Among other precious metals, silver climbed to $11.34/11.40 an ounce from $11.11 late in New York on Tuesday.
Platinum eased a touch to $926.50/931.50 an ounce from $937.50, while palladium was little changed at $181.50/186.50 an ounce against $182. Both metals have steadied after posting dramatic losses on the back of falling demand from the automotive industry, which typically accounts for some 50 percent of platinum and palladium demand.