LONDON — Gold prices slipped more than 2 per cent in Europe on Wednesday as the U.S. dollar strengthened to a two-year high against a basket of currencies, and oil prices slipped nearly $3 (U.S.) a barrel.
Spot gold fell to a session low of $753.70 an ounce before recovering to trade at $755.60/758.10 at 0941 GMT. Late in New York on Tuesday it was quoted at $770.10 an ounce.
A slide in the cost of crude and other commodities such as industrial metals is negating fears over inflation, against which gold is often bought as a hedge, and pushing prices of the precious metal lower.
“The focus has moved to the deflationary, recessionary environment,” said Simon Weeks, head of precious metals at the Bank of Nova Scotia.
“You would expect commodities to come off in that kind of environment, and gold has been caught up in that.”
Oil has slipped sharply in recent sessions, falling close to a 16-month low below $70 a barrel, as traders feared the gloomy outlook for the global economy could translate into lower demand.
The market is awaiting the outcome of Friday's emergency meeting of oil cartel OPEC, which is expected to announce a cut in production quotas. Such a move could boost the oil market, and consequently gold, analysts say.
Gold's other main external driver, the U.S. dollar, has strengthened meanwhile to a two-year high against a basket of currencies, as the dire outlook for the global economy prompted investors to liquidate riskier assets in favour of the currency.
A firmer dollar tends to weigh on gold, as it dents the precious metal's appeal as an alternative investment, and makes it more expensive for holders of other currencies.
Platinum tumbled more than 6 per cent as the stronger dollar added to pressure on the metal, which has been weighed down by fears over falling demand from carmakers.
The automotive sector, which accounts for around half of all platinum demand, has been hit hard by the prospect of recession. A spate of carmakers in the U.S., Europe and Asia have reported falling sales.
A newspaper reported on Wednesday that Toyota Motor Corp's annual profit will likely halve in the year to next March, while General Motors was separately reported to be seeking outside investment.
Nissan Motor Corp said on Tuesday it would cut production in Japan, Britain and Spain in response to falling demand.
Spot platinum slipped as low as $831 an ounce, before recovering to trade at $841/861, against $885.50 an ounce late in New York on Tuesday.
Its sister metal palladium fared slightly better, slipping to $174/182 from $179.50 an ounce.
“There are still some people out there who think (palladium) has some potential and is cheap,” said one Germany-based trader.
“It is easier to try to invest in a $180/oz commodity than in a $860/oz commodity, and probably they think there will be more substitution of platinum by palladium.”
Among other precious metals, silver was trading at $9.86/9.94 an ounce against $10.07.
