Tokyo: Gold wiped out its earlier gains to fall below $1,100 an ounce on Tuesday as a firming dollar triggered a wave of fund selling, but key events including a US interest rate decision later in the week kept investors cautious.
The dollar was buoyed after news that China had implemented a previously ordered rise in some banks’ reserve requirements, helping investors become risk averse.
But gold stayed well above a near five-week low of $1,081.90 hit on Friday, when news of US President Barack Obama’s proposal to limit financial risk-taking hit the broader commodities markets.
Retail demand for the precious metal was solid, particularly from China, at a level below $1,100 per ounce, said Koichiro Kamei, managing director at financial research firm Market Strategy Institute in Tokyo.
“Signs of tightening in China have fuelled fears that demand in commodities would be hit and caused repercussions in financial markets. That is happening again on the news about Chinese banks today,” Kamei said.
“But regardless of tightening affecting the financial sector, retail demand in China for investment and jewellery picks up on price dips. Also, there is seasonal demand as the Chinese New Year is approaching,” he added.
Spot gold fell 0.4% to $1,093.35 per ounce as of 0628 GMT after reversing earlier gains to a high of $1,103.15, compared to New York’s notional close of $1,097.95.
US gold futures for February delivery fell 0.2% to $1,093.10, compared to Monday’s close at $1,095.70 on the COMEX division of the New York Mercantile Exchange.
The market was basically waiting for key events such as the US Federal Reserve’s rate decision and the State of the Union address by President Obama, both on Wednesday, as well as Tuesday’s US S&P/Case-Shiller home price index for November.
“The market does not have much interest (in activity) ahead of the Fed rate decision,” said Louis Lok, a senior dealer at Bank of China in Hong Kong, adding that gold prices were likely to stay in ranges between $1,085 and $1,110 until the rate outcome.
After wide-ranging trade last week and a correction from gold’s high prices, some physical buying has been cited this week, he said.
Coming under pressure from gold entering into negative territory, spot platinum fell 1.5% to $1,524 per ounce. Spot palladium was down 1.6% at $433.75.
Platinum and palladium, valued for their use in automobile catalytic converters, had been rising and hit multi-month highs last week on strong demand for US-based exchange-traded funds backed by the metals launched earlier this month.
Holdings of ETF Securities’ US-based platinum exchange-traded fund rose 10% on Friday, while those of its US palladium product climbed by a third, the company said on Monday.
In contrast, the holdings at the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, have been unchanged since 19 January at 1,111.922 tonnes as of 25 January.