Gold prices spiked up on Wednesday as the dollar fell after US Treasury Secretary Timothy Geithner talked about a system put forward by China that would replace the dollar as the worlds reserve currency. Geithner said he was "quite open" to Chinas suggestion of moving towards a currency system linked to the International Monetary Funds Special Drawing Rights (SDRs).
That hit dollar sentiment as it could mean countries selling large portions of their dollar reserves, analysts said. Spot gold hit a session high of $940 an ounce. "The dollar came off after Geithners comments," said Eugen Weinberg, analyst at Commerzbank. "Gold gained on the dollar."
A weaker US currency makes metals priced in dollars cheaper for holders of other currencies. However gold fell back when Geithner later said the dollar would remain the worlds reserve currency for a long time. Gold was bid at $929.85 an ounce at 1617 GMT, up from $925.65 late in New York on Tuesday.
Gold used as a hedge against financial uncertainty has come under pressure in recent days as stock markets rallied on optimism about the US governments drive to clean up bad loans held by banks. It is up about 5 percent from a six-week low of $882.90 hit on March 18, but is still more than 7 percent shy of the 11-month high above $1,000 set in February. It soared to an all-time peak of $1,030.80 in March 2008.
"We believe that the aggressive credit easing by US authorities has come with the risk of a huge expansion in liquidity, and with it inflationary concerns that could prove to be positive for gold further ahead," Barclays Capital said. Strong interest can be seen in the worlds largest gold-backed exchange-traded fund, the SPDR Gold Trust, which said its holdings rose to a record 1,124.99 tonnes on March 24, up 10.7 tonnes from the day before.
Spot silver was bid $13.45 an ounce from $13.40 an ounce on Tuesday, palladium at $206 from $205.50 and platinum at $1,115 from $1,114. Platinum used in autocatalysts to clean car emissions has tumbled alongside deteriorating sales in the auto sector. Prices have halved since a record $2,290 in March 2008.