LONDON (Reuters) - Gold prices sank about 2 percent on Friday and headed for its biggest monthly drop in more than 30 years, as a strong dollar and recession fears triggered a sell-off, traders and analysts said.
Macroeconomic data on Thursday that showed the U.S. economy had shrunk 0.3 percent, the sharpest fall in seven years, escalated recession worries and knocked down all commodities, including metals and oil.
Platinum fell more than 5 percent as slowing economies around the globe and the widespread credit crisis caused the largest auto industry companies to slash full-year profit targets, warn of job losses and push for speedy government handouts.
Gold was at $725.80 an ounce by 1030 GMT, having trimmed some losses after hitting $720.70 an ounce, compared to $735.50 an ounce late on Thursday in New York.
"Gold's moves today are mainly currency driven," said Simon Weeks, director of precious metals at the Bank of Nova Scotia. "At the month-end flows are in favor of the dollar."
The dollar was firmer against most major currencies on expectations of large dollar demand for the month-end. Gold tends to move in the opposite direction of the dollar as a strong U.S. currency makes bullion more expensive for local currency holders.
Recession fears added to the bearish sentiment.
"In times of recession, the most likely scenario for gold is it goes down a lot, especially if it is trading at historically high levels," said Jesper Dannesboe, senior commodity strategist at Societe Generale.
"Because the fears of inflation will be replaced by fears of disinflation and that is a killer for gold ... I think gold is going below $600 in this cycle."
The metal has lost as much as 21 percent of its value this month alone, and is down 12 percent this year, well below the recod high of $1,030.80 struck in March.
It hit a 13-month low of $680.80 last week after investors sold bullion to pay for margin calls. A recovery in stock markets and firmer oil spurred a rebound in gold this week but technical selling emerged after it failed to sustain Thursday's high.
Oil slipped for a second day, dropping more than 3 percent towards $64 a barrel and is set for its biggest ever monthly loss as weak U.S. economic data rekindled demand worries, which, in theory, reduces gold's appeal as a hedge against inflation.
"Investors are reluctant to buy too much, in case anything happens. We've seen a little bit of physical selling around $770," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong, referring to this week's high.
Platinum was trading at $789.50 ounce, down $27.50 from New York's notional close. It has lost more than 60 percent of its value since hitting a lifetime high of $2,290 in March, mainly due to worries about falling demand for autocatalysts.
As the strong yen forced Japanese carmakers Mazda and Mitsubishi to slash full-year targets, struggling U.S. automakers were looking to obtain billions from the U.S. government to help them to survive.
More than 60 percent of global platinum goes to autocatalysts to clean exhaust fumes.
New York gold futures fell $10.8 an ounce to $727.6.
Palladium was at $192.00/202.00 from $197.00 while spot silver was at $9.35/9.45 compared to Thursday's $9.66 late in New York.
