Gold was undermined on Monday by the dollar's rise against the euro on uncertainty about aid for indebted euro zone countries, which also sparked some safe-haven buying of the precious metal.
Spot gold was bid at $1,490.14 a troy ounce at 11:33 SA time from $1,493.25 late in New York on Friday. The precious metal hit a record high of $1,575.79 on May 2. U.S. gold was down 0.2 percent at $1,490.60 an ounce.
The dollar rose to a seven-week high against the euro as news that IMF chief Dominique Strauss-Kahn had been accused of attempted rape added to uncertainty.
“If you have a strong dollar you will see gold fall, but in euro terms, gold will probably do quite well,” said Dan Brebner, analyst at Deutsche Bank.
Gold was around 1,057 euros, little changed from Friday's levels, and within touching distance of all-time highs above 1,075 euros hit in December.
Brebner added that the withdrawal of accomodative monetary policy was causing concern as it could derail growth and lead to deflationary pressures.
“In that kind of environment (deflationary) gold will outperform industrial commodities. Gold is a deflation hedge, it is often used as a currency and by definition currencies outperform in deflationary environments.”
The U.S. Federal Reserve's latest bond-buying program or quantitative easing is due to end in June and the European Central Bank raised interest rates by a quarter percentage point to 1.25 percent in April.
WAVE OF SELLING
Euro zone finance ministers meeting in Brussels are expected to back a bailout for Portugal and tell Greece it must deliver on agreed fiscal and privatisation targets if it wants new emergency funding next year.
“Immediate concerns over peripheral debt troubles in the monetary union will not evaporate,” VTB Capital said in a note. “The euro/dollar will probably continue to dominate trading.”
Silver tracking gold fell 3.5 percent to hit $34.03. It was last at $34.16 an ounce from $35.28 on Friday. The industrial precious metal has crashed about 30 percent since a record high of $49.51 on April 28.
A wave of hot money from funds fuelled a rally that saw silver price nearly double in the space of four months, overwhelming fundamentals in an illiquid market.
But investor selling after exchange operators in Shanghai and New York raised the cost of trading silver, saw prices collapse in May.
“From a purely fundamental perspective, silver continues to look expensive and the market is likely to remain vulnerable to swings in sentiment. The next important technical support to watch is $33,” Credit Suisse Private Banking said in a note.
“Physical use (of platinum group metals) is likely to grow on the back of strong global car sales while investment interest is likely to remain robust. This should translate into higher prices over the course of the year.”
Autocatalyst metal paltinum was bid at $1,751.99 an ounce from $1,756.05 on Friday and palladium was at $705.50 from $705.70 an ounce. - Reuters
