Gold (GC-FT985.80-11.30-1.13%) prices slipped below $990 (U.S.) an ounce in Europe on Thursday, giving up earlier gains, as the dollar index turned higher, denting interest in the precious metal as an alternative asset.
Traders say they are waiting to see whether the gains that took the metal above $1,000 an ounce for only the third time in history on Tuesday can be sustained. If the metal seems vulnerable at higher levels, selling is likely to gain momentum.
Spot gold eased to $988.30 an ounce at 0940 GMT against $991.15 late in New York on Wednesday. U.S. gold futures for December delivery on the COMEX division of the New York Mercantile Exchange fell $6.80 to $990.40 an ounce.
Heraeus' head of sales Wolfgang Wrzesniok-Rossbach said gold had struggled to establish itself at higher levels.
“We have had bad news on physical demand from India and Turkey, we are seeing a lot of scrap coming in, for example from Hong Kong ... (and) industrial demand is low, so from a fundamental point of view there is no reason for gold to trade above $1,000,” he added.
Gold is mainly relying on dollar weakness for support, and will need to close above the $1,000 level to be in a position to challenge its all-time high of $1,030.80 an ounce, set in March last year, Wrzesniok-Rossbach said.
The dollar index edged higher on Thursday, recovering after approaching its lowest point this year. Firmer stock markets and rising oil prices have boosted interest in currencies seen as higher risk in recent sessions.
A weak U.S. currency boosts interest in gold as an alternative asset, and also makes the dollar-priced precious metal cheaper for non-U.S. investors.
“The traditional inverse relationship between gold and the U.S. dollar appears to have been re-established during the current gold rally,” said HSBC analyst James Steel in a note.
“The potential for U.S. dollar weakness is among the most compelling factors supporting the rally.”
Crude oil (CL-FT71.610.300.42%) prices climbed back above $72 a barrel on Thursday, further supporting gold, which is often bought as a hedge against oil-led inflation.
Oil is benefiting from a rise in stock markets, dollar weakness, and soothing words from the OPEC producer group. On the wider markets, world stocks and European equities rallied to 11-month highs, building on recent gains.
Among other precious metals, silver (SI-FT16.09-0.38-2.28%) was flat at $16.27, platinum (PL-FT1,279.60-11.80-0.91%) was at $1,273.50 against $1,276, while palladium (PA-FT293.05-2.00-0.68%) was at $289 against $290.50.
ETF Securities said holdings of its London palladium-backed exchange-traded fund rose 5.5 per cent to a record 477,766 ounces, while its gold and silver-backed products also recorded inflows.
“Investment demand will continue to erode overhead resistance between $296-305,” said James Moore, an analyst at TheBullionDesk.com.
