Gold prices fell to their lowest in 10 days in Europe on Monday, taking a cue from currencies as the dollar bounced off 14-month lows against the euro, with weak physical demand for the precious metal also weighing. Spot gold was bid at $1,046.05 an ounce at 1619 GMT, against $1,053.95 late in New York on Friday, having hit a low of $1,044.80 - last seen on October 16.
US gold futures for December delivery on the COMEX division of the New York Mercantile Exchange fell $10.20 to $1,046.20 an ounce. "The relationship between gold and the dollar on a daily basis is still very strong," said Daniel Major, analyst at RBS Global Banking and Markets.
"Since gold broke above $1,000 it has outperformed the euro/dollar slightly, ie it moved up faster than the dollar devalued, but for the last week or so it seems to be consolidating," he added. The dollar bounced off 14-month lows against the euro on Monday, trading up on the day after riskier assets such as US stocks fell.
Strength in the US currency makes gold less attractive for holders of other currencies, as well as denting interest in gold as an alternative asset. While falls in stock markets usually boost gold's safe haven appeal, they have recently sent investors running for the perceived safe haven of the dollar over that of gold.
"The gold price rally of the past weeks was largely the result of a softer US dollar. Without further USD weakening, gold would lose one major price supporting factor, especially as - on the back of the high price level," Commerzbank said in a note to clients. "The physical demand in India has already weakened significantly. Most recently, gold ETFs have not seen any meaningful inflows of late.
We continue to see the downside risk of a price correction in gold." Demand from jewellers and investors alike remained relatively soft, weighing on gold. "Investors and dollar doom-sayers may say gold could rise higher, but physical markets are not at all in sync with that view," said Richcomm Global Services senior analyst Pradeep Unni.
Wholesale gold traders in India, the world's biggest bullion consumer last year, said they were picking up some bargains as prices retreated from record highs, but demand was soft overall. Investment buying was also less than buoyant. The largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, reported no fresh inflows on Friday.
Speculative positions in US gold futures eased from peaks, with non-commercial net long positions falling 1.5 percent in the week to October 20 from a record 253,955 lots the week before, the weekly Commitments of Traders report showed. Among other precious metals, spot silver was bid at $17.42 an ounce against $17.65.
In a note, Bank of America Merrill Lynch said silver prices had benefited from strong investment demand, and that a recovery in economic activity was likely to be reflected in industrial silver buying. "After the recent sharp price rises, we are cautious on silver in the near-term, but we believe that a spike towards $20 an ounce is possible in 2010," it said.
ETF Securities said holdings of its silver-backed exchange-traded commodity rose 1 percent or just over 200,000 ounces to a record 21.054 million ounces on Friday. It added that its palladium-backed ETC also saw inflows of nearly 9,000 ounces 1.6 percent that day, bringing its total holdings to a record 558,337 ounces. Spot platinum was at $1,348 an ounce against $1,358, while palladium was at $332.00 against $333.