Gold slips further as dollar gains strength

Gold slipped more than one per cent in Europe yesterday as weaker-than-forecast German economic data and growing expectations for a euro zone rate cut sent the single currency to a six-month low against the dollar.

A stronger dollar typically pressures gold, as the metal is often bought as a hedge against weakness in the US currency. Gold slipped to $809.60/810.60 an ounce at 0916GMT.

"Currencies are moving gold around," Fairfax analyst John Meyerm said.

"We saw a very sharp move this morning in favour of the dollar, which has accelerated what has been a recent trend in dollar strength against the euro.

"Gold is tracking the euro, and expectations that oil will move lower," he added. The euro fell more than a cent to a six-month low below $1.46 after the German Ifo business confidence index slumped to its lowest in three years, fanning speculation a euro zone rate cut may be in the offing.

While the metal has taken support in recent sessions from an upsurge in physical demand for jewellery, coins and bars, analysts say this is unlikely to be enough to counteract the effects of a strengthening dollar.

Demand should pick up in the world's biggest gold market, India, ahead of the Hindu festival of Diwali in October, but with prices seen poised for further falls, serious buyers are likely to hold off until next month, analysts said. The other main external driver of gold, oil, also slipped by more than $1 a barrel, undermining support for the precious metal. "[Gold] prices should remain well supported today as investors watch oil market dynamics," Madinane added.

Traders will also be looking to a raft of US data due out later in the session for clues as to the next direction of the dollar, and consequently of gold.

Among other precious metals, silver eased to $13.15/13.20 an ounce from $13.37/13.43 an ounce late in New York. The metal, which normally tracks gold, tumbled to $12.39 in mid-August, its weakest since September.

Platinum and palladium were relatively steady after recently suffering sharp falls.

Spot platinum edged down to $1,410/1,420 an ounce from $1,420/1,440 late in New York, while palladium was steady at $285/290 an ounce from $285/293 an ounce.