Gold falls on dollar rally, profit-taking

London: Gold fell on Tuesday as a recovery in the US dollar weighed and as investors took profits after bidding the metal up to a record $1,300 (Dh4,774) an ounce in the previous session.

Silver was off a 30-year high, while platinum and palladium tracked stock markets lower.

Spot gold traded at $1,289.20 an ounce at 9.55am versus $1,296.05 late in New York on Monday, having struck a record on concerns over the global economic recovery and a weaker dollar.

US gold futures for Dec-ember delivery fell $6.50 to $1,292 an ounce. The contract high on Monday was below the record at $1,301.60 set on Friday.

"There is some profit taking setting in [and] the fears over Ireland, fears of a further crisis in the Eurozone periphery is weighing on the euro and also on gold," said Quantitative Commodity analyst Peter Fertig.

He added, however, that just as with the Greek debt crisis earlier this year, gold will only follow the euro lower for a short time, before investors return to bullion as a perceived safe haven asset.

The struggling dollar earned a breather yesterday, helped by a report the US Federal Reserve was weighing a smaller-scale, more open-ended bond buying programme compared to its previous large asset purchase scheme.

Still, many traders expect the greenback's downtrend to stay intact, taking the view that any future quantitative easing (QE) by the Fed, even in a modest form, would probably still be more aggressive than moves by other central banks.

A weak dollar makes dollar-priced gold cheaper for non-US investors and enhances the appeal of bullion as an alternative asset to the US currency.

Mild rebound

"A lot of gains in the last week and a half have been driven by a weak US dollar. There is a reasonable chance to expect the dollar to rebound mildly of a low base," said Mark Pervan, senior commodities analyst at ANZ.

"And that will certainly trigger some selling as well in the gold market."

Investors will closely scrutinise US data releases this week, including manufacturing purchasing manager indexes for a number of key economies and a US core inflation reading due on Friday.