SINGAPORE (Reuters) - Gold slipped on Thursday after rising to a 2-month high the previous day but global economic gloom and the Federal Reserve's massive rate cut, which pushed the dollar lower, could still attract buying from investors.
Gold's safe-haven appeal has been restored somewhat after it regained $800 an ounce last week, boosted by a drop in the dollar that reflected mounting economic problems, and a steady increase in demand for gold-backed exchange-traded funds.
"I think the important piece of news will be the Fed cutting rates to zero to 0.25," said Adrian Koh, analyst at Phillip Futures in Singapore.
"Oil is still on a strong downtrend and the dollar also seems to be slipping, so I guess gold is going to be stretched between the two factors. But I think you can say overall sentiment in gold has improved."
Gold traded at $863.20 an ounce, down $3.70 from New York's notional close on Wednesday, when it rallied as high as $881.20 an ounce on follow-through buying and dollar weakness after the Fed cut rates this week.
The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said it held775.33 tonnes of gold as of Dec 17, up 6.12 tonnes from December 16.
The euro hit a high of $1.4456 on trading platform EBS, the highest since late September, after the Fed's dramatic interest rate cut this week further widened the interest rate differential in favor of the euro zone currency.
Besides profit taking, weaker oil prices put pressure on gold on Thursday, but dealers said investors were happy to buy on dips. Gold has bounced more than 20 percent since falling to a 13-month low around $680 in October, but it was still below a lifetime high of $1,030.80 struck in March.
"I think market sentiment is not that bad. Gold still attracts buying interest. People are not happy to put too much money in the bank," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.
"We've seen profit taking after the prices rose by so many dollars," said Leung, adding that demand from investors offset limited interest from jewelers.
Gold's recent rise sparked sales of scrap in the physical market, putting pressure on premiums in Hong Kong and Singapore.
"Basically we've seen a lot of dishoarding. The jewelers are on the selling side, although they have slowed down a bit because of the year-end," said a dealer in Singapore.
In Singapore, premiums for gold bars dropped to 50 U.S. cents to the spot London price, from $1.50 last week. Premiums in Hong Kong also slipped to 50 cents from $2.
Oil fell further to below $40 a barrel on Thursday, hovering within sight of its weakest in more than four years, as further evidence of slowing demand overshadowed OPEC's biggest production cut ever.
Platinum was trading at $863.00 an ounce, down $0.50-from New York's notional close. Continued...
