Gold dropped 1 percent on Tuesday, on track for its biggest fall in a month, as a sharp drop in crude oil on a bearish forecast from Goldman Sachs dragged the metal further from record highs. Rallying prices of US government debt also took some safe-haven bids away from gold, after Japan raised the severity level of the crisis at its quake-stricken nuclear plant.
Bullion has risen 11 percent since late January as rallies in oil and grains stoked inflation worries. After hitting 31-year highs on Monday, silver also fell but less than gold despite the white metal's higher price volatility.
"That (Goldman report) has given enough reasons for investors to trim their positions, in particular for those markets that have gone parabolic. That's enough to cool enthusiasm for commodities at the moment," said Mark Luschini, chief investment strategist of broker-dealer Janney Montgomery Scott with $53 billion of assets under management. Spot gold dropped 1 percent to $1,451.69 an ounce by 2:18 pm EDT (1818 GMT), having earlier hit a one-week low of $1,443.49. On Monday, gold hit a record at $1,476.21.
US gold futures for June settled down $14.5 at $1,453.60 an ounce, with trading volume rebounding after slower-than-normal activity in the last several sessions. Goldman Sachs called a near $20 fall in the price of Brent crude in the coming months, saying speculators have pushed prices ahead of fundamentals.
The correlation between gold and oil tightened to 0.7 on Tuesday, approaching its strongest level in nearly three months, as recent crude rallies have increased gold's inflation-hedge appeal. Poor investor sentiment more than offset weakness in the dollar, which fell to a 15-month low against the euro.
Silver reversed earlier gains to trade down 0.3 percent at $40.04 an ounce, and was about 5 percent below Monday's 31-year high at $41.93. Among platinum group metals, platinum lost 0.7 percent at $1,768.50 an ounce, while palladium fell 2.6 percent to $760.72.