Gold fell as much as 2 percent on Monday to a low of $975.00 an ounce as investors cashed in gains after the previous session's rally and stock markets rose. But prices are poised to resume their push higher and could hit new peaks above $1,030 an ounce as investors worry about the stability of the financial sector and longer-term inflation prospects, analysts said.
At 1510 GMT, spot gold was trading at $984.90/986.90 an ounce versus $997.30 in New York late on Friday. It hit $1,005.40 an ounce on Friday, just 2.5 percent below a record $1,030.80 an ounce it reached in March last year. US gold futures for April delivery on the COMEX division of the New York Mercantile Exchange fell $15.20 to $987.00 an ounce.
"Near term trading is on the short side, looking for a correction," Saxo Bank senior manager Ole Hansen said. "(But) the view is that we are still going higher." Gold rallied sharply on Friday as equities tumbled, pushing investment into gold. Investor appetite for gold rose sharply as financial markets fell and fears over long-term inflation increased due to a massive US economic stimulus package that was signed last week. Gold is perceived as a safe-haven asset.
The world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, said holdings were at a record 1,028.98 tonnes as of Feb. 22. Demand for gold jewellery is still low as high prices curb buying. Gold imports into India, the world's biggest gold market, are likely to be flat at 400 tonnes, the vice-president of the Bombay Bullion Association said. However, investment demand is more than outweighing this fall, analysts said, and should allow gold to reach new highs after a period of consolidation.
"Should gold actually manage to establish itself in the four digits, then a test of its all-time high can no longer be ruled out," precious metals house Heraeus said. Bullion, which would usually be pressured by a dollar recovery, is shrugging off moves in the currency. While gold is usually bought as a hedge against dollar weakness, both assets are benefiting from risk aversion.
But any further weakness in the dollar still has the scope to boost gold, analysts say. Among other precious metals, spot silver was at $14.26/14.31 an ounce from $14.38 on Friday. Spot platinum was at $1,075.50/1,080.50 an ounce from its previous close of $1,080.
Palladium meanwhile fell 8 percent before the PM fix to a three-week low of $195 an ounce. It was later at $199/204, down from $212.50 late in New York on Friday. "It looks like someone came in and sold a reasonable chunk into the market," said Commerzbank trader Rory McVeigh. "The market has been relatively thin on palladium, so it doesn't take a great deal to move it."