Gold came under pressure in Europe on Monday from a recovery in the dollar index and fears the metal's run-up to 18-month highs last week was overdone. The precious metal recovered some of its early losses, however, as the dollar retreated from highs, allowing prices to rise back towards $1,000 an ounce.
Spot gold hit $997.60 an ounce at 1412 GMT against $1,004.85 late in New York on Friday. US gold futures for December delivery on the COMEX division of the New York Mercantile Exchange fell $6.40 to $1,000 an ounce. The dollar index gave up some of its earlier gains in early afternoon trade, but remained firmer as risk-averse investors shied away from higher-yielding currencies.
A stronger US currency typically weighs on gold, as the precious metal is often bought as an alternative to the dollar. Last week the dollar's slide to one-year lows against a currency basket sparked a rise back above $1,000 an ounce. Gold's climb to 18-month highs of $1,1011.55 on Friday was accompanied by a sharp rise in net long positions on the COMEX futures market without a corresponding surge in physical demand, leading to fears the market could see a sharp correction.
Inflows into gold exchange-traded funds have slowed sharply since record levels of buying in the first quarter. The largest, New York's SPDR Gold Trust, said its holdings were unchanged on Friday for a fifth session, although some others have continued to see modest growth. "We have seen a mixture of (rising) ETF positions and short-term speculative positions on COMEX driving prices, whereas at the start of the year we saw a very strong build in ETF positions," said Barclays Capital analyst Suki Cooper.
"If we continue to see that build in investment interest, prices will be maintained, but given how high and how strong those levels are, a potential correction could be in the offing." Dollar-priced commodities almost across the board suffered on Monday as gains in the US currency made them more expensive for other currency holders, with oil and base metals slipping.
Weakness in crude prices can weigh on gold, which is often bought as a hedge against oil-led inflation. On other markets, Wall Street opened lower and European stocks declined, with weaker macroeconomic data and a trade row between the United States and China weighing on buying interest.
David Wilson, an analyst at Societe Generale, said gold was suffering from a recovery in the dollar and its technical break higher through key resistance levels was running out of steam. "I think we'll settle back to a lower range, with support around $960 an ounce," he said. "India's jewellery demand has dropped off again, showing weaker physical demand, while there hasn't been any momentum from ETFs."
Among other precious metals, silver was at $16.49 an ounce against $16.74, as a decline in base metals added to the downward momentum sparked by falling gold prices. Platinum was at $1,312 an ounce against $1,315.50, while palladium was at $290 against $290. South Africa's National Union of Mineworkers said on Monday its members at Anglo Platinum, the world's top platinum producer, had agreed to a one-year wage deal, averting a possible strike.