Gold was as much as 2 percent higher on Thursday after the European Central Bank left interest rates on hold and the Bank of England cut its key rate, buoyed by buying of the metal as a haven from risk. However, the precious metal retreated from highs as the dollar firmed against the euro in the wake of the ECB decision, denting gold's appeal as a currency hedge.
Spot gold was quoted at $920.45/922.45 an ounce at 1459 GMT, up from $904.70 in New York late on Wednesday. Earlier it touched a high of $924.00. US gold futures for April delivery on the COMEX division of the New York Mercantile Exchange rose $20.40 to $922.00 an ounce. "We are seeing more investor interest in gold," said Citi analyst David Thurtell.
"Some like it as a safe haven in times of high economic uncertainty, and others like it as a hedge against inflation. "While deflation is the short-term threat, there is a concern that all this monetary and fiscal stimulus will eventually cause inflation to explode," he said. The ECB opted to leave its interest rates on hold at 2 percent. The bank's president Jean-Claude Trichet had already flagged that no rate cut was on the cards.
"The backdrop of rate cuts has been supportive for gold over the last few weeks and months, mainly on the fear of inflation further down the line," said VM Group analyst Matthew Turner. "Today's moves were just a confirmation of that theme." Interest in gold as a safe store of value is fuelling buying among risk-averse investors.
Interest in physical bullion in the form of coins and bars and investment products such as gold-backed exchange-traded funds has soared as fears over the outlook for the global economy has made asset prices volatile. Investors also fear the large amount of government debt poured into the banking sector will fuel inflation.
"The fact that gold as an asset class has more trust in it than a lot of other financial products out there at the moment means people are continuing to push money in there," said Commerzbank trader Rory McVeigh. The world's largest bullion-backed ETF, New York's SPDR Gold Trust, said its holdings hit another record on Wednesday, rising to 859.49 tonnes.
Goldman Sachs lifted its three-month gold forecast to $1,000 an ounce from $700 an ounce, citing safe-haven demand for the metal. "The gold price rally has been driven by surging demand for gold in all forms: physical gold, exchange traded funds and futures contracts and investors seek a 'safe store of value'," the bank said in a note.
"It is also important to emphasise that the recent strong demand for gold has not been irrational, but rather pretty much in line with the probabilities of financial and sovereign default." Silver climbed to $12.77/12.85 an ounce against $12.51 late in New York on Wednesday.
Platinum was quoted at $976/981 an ounce against $964. Aquarius Platinum, the world's fourth-largest producer of the white metal, cut its 2009 production target by 100,000 ounces to 475,000 ounces, and said its output fell 6 percent in 2008 from the year before.
"News of platinum producers struggling with costs and production may help platinum prices move higher, although continuing negative news on auto sales may hold prices back," Fairfax analyst John Meyer said. Palladium was at $198.50/203.50 an ounce from $194. Earlier it rose nearly 5 percent to a high of $203.50, driven by buying for palladium-backed ETFs, dealers said.