Gold eased in Europe on Friday, consolidating after hitting record highs for three straight sessions, as an indication from the US Federal Reserve chief that monetary policy may be tightened lifted the dollar. Spot gold was bid at $1,048.40 an ounce at 1426 GMT against $1,054.00 late in New York on Thursday, opening up a gap on its record this week of above $1,060 an ounce.
US gold futures for December delivery on the COMEX division of the New York Mercantile Exchange fell $6.50 to $1,049.80. Fed chairman Ben Bernanke said at a conference on Thursday he was thinking of an exit strategy from quantitative easing and low interest rates as the US economy improves. The statement lifted the dollar index, which measures the US unit's performance against a basket of six other major currencies, from 14-month lows.
"Everybody is watching the dollar. It was weak in the last few days but it has clawed back a few losses today after Bernanke spoke yesterday, so that has capped gold for the moment," said Calyon metals analyst Robin Bhar. "But there is a good argument that it is finding a floor here down to $1,030, the previous high," he added. "That is going to be support."
"It seems people are beginning to realise the real effect of quantitative easing - not only the threat to inflation, but the threat to fiat (official) currencies," said Nick Bullman, managing partner of hedge fund Bullman Investment Management. "If you carry on just printing money, eventually people will start to look for another store of value."
Physical demand for gold remains weak as high prices deter jewellers, traditionally the main buyers of gold. Buying in India, the world's largest bullion market last year, has been lacklustre despite the onset of the festival season. The impact of a soaring dollar gold price had been cushioned for domestic buyers by strength in the rupee, but the Indian currency snapped five days of gains on Friday to weaken.
Other major centres for physical gold trade such as the Middle East have also seen little upturn in sales during the present price run-up, suggesting it is based on large investment rather than broad-based demand. Among other precious metals, silver also retreated from the 14-month high at $17.92 an ounce it hit on Thursday. Spot silver was at $17.74 an ounce against $17.72.
Spot platinum was at $1,336 an ounce against $1,344.50, while palladium was at $320 against $318. The metal used in autocatalysts hit a peak of $323, its highest since mid-August 2008, earlier on Friday. Palladium, which according to dealers underperformed other precious metals earlier this year, has been lifted by gains in gold, hopes demand will improve as the economy recovers and concerns over the availability of Russian stocks.