Gold fell on Wednesday as a stronger dollar versus the euro and gains in share prices reduced bullion's allure as an alternative asset, while platinum extended its rise to a 12-week high.
Gold was underpinned late last year when demand concerns hit many commodities including platinum, but these other commodities are now recovering while gold is lagging behind, analysts said.
As of 0636 GMT, gold was down 0.3% to $861.15 an ounce from New York's notional close of $863.35.
On Tuesday, gold touched a two-week low of $838.55 in New York, while the dollar extended its rally to a one-month high against the euro.
“Gold came under pressure from a stronger dollar as well as gains in US shares. Behind them lie a sort of euphoria in the US, or strong expectations for President-elect (Barack) Obama,” said Tatsuo Kageyama, analyst at Kanetsu Asset Management.
“A gold rally above $900 now looks highly unlikely and instead we should be prepared for a risk that it will test further downside,” he said.
A stronger dollar makes dollar-based gold more expensive for holders of other currencies, while stock rallies often stoke concerns about outflows of money from gold.
But some analysts said the downside may be limited as low visibility on the prospects for the global economy could mean more money is poured into gold as a safe haven.
Demand from exchange-traded funds, which issue securities backed by physical gold, remained firm as the amount of bullion held in the bank by the world's biggest gold ETF hit a record high.
The SPDR Gold Trust GLD said it held a record 787.88 tons of gold on January 7, up 7.65 tons from the previous day.
Market views will likely swing between optimism over government spending plans and deepening gloom over the economic reality, meaning financial markets may be stuck in narrow ranges for a while, said Hitoshi Yamamoto, president at Fortis Asset Management Japan.
“In the first six months of this year, I think there will be unexpectedly stable prices in many financial markets. Prices from currencies and stocks to commodities could be stuck in a boxed range,” Yamamoto said.
The dollar held onto the previous day's gains on Wednesday amid hopes for an aggressive stimulus package from the Obama administration.
Persistent signs of economic weakness in the euro zone also helped pushed the euro down against the dollar.
US gold futures were lower in Asia after rising about 1% in New York on Tuesday. Gold futures for February delivery GCG9 stood at $862.4 per ounce, down $3.6 or 0.4% from Tuesday's settlement on the COMEX division of the New York Mercantile Exchange.
In contrast, cash platinum rose as high as $996.00 an ounce, the highest since October 15, helped by buybacks from investors and extended gains in the Tokyo futures market.
Platinum later came off its highs and stood at $990.50 an ounce, up 2.6% from $965.50 in New York.
The December platinum contract on the Tokyo Commodity Exchange rose ¥163 per gram to ¥3,000. The TOCOM December gold gained ¥56 per gram to ¥2,599.
Portfolio rebalancing prior to a scheduled index rejig by commodity index funds tracking the Dow Jones-AIG Commodity Index may have been supportive to gold and silver.
The Dow Jones AIG recalculates the weightings for the individual commodities in its index yearly and is set to raise the weightings for gold and silver later this week to next week.
But analysts say such a technical effect would not last long beyond the transition period. (Reuters)