LONDON — Gold recovered on Thursday from a 13-month low hit overnight in Asia, as an uptick in oil prices counterbalanced the stronger U.S. dollar, which is denting the precious metal's appeal as an alternative investment.
Spot gold was quoted at $727.05/729.55 (U.S.) an ounce at 0917 GMT, against $727.65 late in New York on Wednesday. Earlier it touched a low of $718.20, its weakest since September 2007.
Crude bounced back after a 7.5 per cent fall on Wednesday as investors focused on expectations oil cartel OPEC will opt to cut output at its emergency meeting on Friday.
However, a number of factors still count against gold.
“On the one hand there is the dollar, and on the other we have recession fears weighing down on gold,” said Commerzbank analyst Barbara Lambrecht.
The U.S. dollar hit a fresh two-year high against the euro as worries over the outlook for the global economy sparked a flight to safety among investors.
The dollar is usually considered the most important external driver of gold. In addition to lessening bullion's appeal as a currency hedge, a stronger U.S. currency makes dollar-priced gold more expensive for holders of other currencies.
“The U.S. dollar (is firming) against the euro on continued speculation of further rate cuts,” said investment bank Dresdner Kleinwort in a research note.
“As long as recession fears prevail and investors remain jittery, gold and other metals are likely to remain under pressure,” it said.
Gold prices have gyrated in recent months as financial markets have slumped. The World Gold Council said price volatility spiked in the third quarter, rising to 39 per cent from 23 per cent the quarter before.
Platinum slid another 6 per cent, extending losses that have seen the metal shed half its value since early August, as the firmer dollar adds to pressure on prices.
The white metal primarily used as a component in autocatalysts has already been hit by fears over falling demand from carmakers, who account for half of platinum consumption.
Such fears are also affecting demand for other platinum group metals, such as rhodium and palladium.
“Platinum, palladium and rhodium plummeted 54 per cent, 59 per cent and 82 per cent respectively as auto manufacturers reported a significant slowdown in global vehicle growth,” said Credit Suisse analyst David Davis in a note.
“Precious metal prices were also affected by the disinvestment of around 200 000 ounces of platinum exchange-traded funds.”
Nonetheless, analysts say they believe the metal will bounce in the medium term as supply remains tight, especially from major producer South Africa.
Anglo Platinum, the world's number one supplier of platinum, said on Thursday its output of the metal fell 11 per cent in the third quarter, but kept its annual production target unchanged despite falling prices.
Spot platinum was quoted at $824/848 an ounce, down from $831.50 late in New York on Wednesday. Earlier it touched a low of $781, its weakest level since July 2004. Its sister metal palladium edged down to $171/176 from $173.50.
Silver bucked the trend to strengthen, climbing to $9.58/9.66 from $9.50 as firm demand from India supports prices.
Investment demand for the metal is also strong. The iShares Silver Trust, the world's largest silver backed ETF, said its holdings stood at a near-record 6,895.58 tonnes on Monday, the last day for which figures are available.
