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London: Gold fell more than 2 per cent yesterday as the dollar climbed to its firmest level since July 10 against the euro, denting the precious metal's appeal as a currency hedge.
Oil prices fell below $126 a barrel, helping to soothe some of the inflation fears that have supported gold, while other commodities such as grains and base metals also slipped.
Gold dropped to $923.70/924.70 an ounce at 1450 GMT from $948.30/949.90 late in New York on Tuesday, having hit an intra-day low of $921.80 - its lowest level since July 9.
HSBC analyst James Steel said a combination of weaker oil prices, declines in other commodities, an improvement in the credit market and the belief that the Fed may be focusing more on inflation are all conspiring to push gold lower. "Gold has four major things hitting it today [Wednesday] so I would be very surprised, given the way other commodities and financial markets are moving, if gold wasn't down," he said.
Rally
The dollar rallied to a two-week high against the euro, supported by a slide in the oil price and a recovery in risk appetite. A stronger greenback tends to pressure gold, which is often bought as an alternative investment to the currency.
Crude prices were also lower, giving up more than $2 a barrel trade at $126.05 a barrel at 1451 GMT, as concerns eased that Hurricane Dolly would hit oil installations in the Gulf of Mexico, and after a rise in US gasoline stocks.,
Gold usually moves in the same direction as crude, as it is often bought as a hedge against oil-led inflation.
Investor interest in gold seemed to be softening, with the amount of gold held to back the SPDR Gold Trust in New York - the world's biggest gold-backed exchange-traded fund - falling 2 per cent to 690.26 tonnes on Tuesday.
Holdings previously had been close to a record.
The platinum group metals also posted sharp losses, with platinum sliding to a 5-1/2 month low and palladium slumping more than 5 per cent, in sympathy with gold and amid fears over demand from car manufacturers. The precious metal is widely used by the car industry in catalytic converters.
General Motors said yesterday that its global sales fell 5 per cent in the second quarter, hurt by a 20 per cent decline in North America.
An earlier report said carmaker Toyota may cut its sales target this year.
The reports suggest "a weakening auto market, and consequently less demand from the auto-catalyst market," said Fairfax metals analyst John Mayer.
Platinum prices in particular have slipped sharply over the last 10 days, which the noble metal currently trading nearly 25 per cent below its March peak of $2,290 an ounce.
However, with output from major producer South Africa still constrained by a power shortage, analysts say the market remains firmly underpinned, and should not fall too much further.
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