Singapore - Gold eased on Wednesday after oil dropped more than $1, but falling stock markets also spurred safe-haven buying by investors at lower levels, helping lift holdings in the world's largest bullion-backed exchange-traded fund.
Platinum dropped nearly 5% as poor sentiment offset a recent rally which had pushed the price back to the $1 000 level on Monday. Silver tracked gold lower and palladium firmed on bargain hunting.
Gold was trading at $881.35 an ounce, down $5.25 an ounce New York's notional close on Tuesday, when it jumped to as high as $890.60 an ounce, its highest in nearly a week, on losses in stock markets.
Asian stocks fell about 4% on Wednesday, down for a fifth consecutive day, as fears of a looming global recession grew with no sign of a coordinated response or an end to the worsening financial meltdown.
"This is a good time to buy gold. Stock prices are not so good. ETF is a good support for gold prices. This is the actual investment buying," said Yukuji Sonoda, precious metals analyst at Daiichi Commodities in Tokyo.
"The upside targets are $900 or $920," he said.
Gold hovered around $900 late last month, when hit a two-month high of $920 on September 29 on a weaker US dollar. The metal was well below a lifetime high of $1 030.80 struck in March.
Holdings in the world's largest gold-backed ETF, the SPDR Gold Trust, rose to 745.22 tonnes as of October 8 from 744.54 tonne as of October 7.
Oil retreated below $90 a barrel as concerns the global financial crisis will curb demand for fuels overshadowed signs that producer group Opec was considering a supply cut.
In theory, weaker oil prices reduce gold's safe haven appeal, but a tumbling stock market raised the metal's appeal as an alternative investment.
"I think we are still watching developments in Europe, and whether interest rates will go down worldwide. People are buying gold for safe-haven purposes," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.
"I think we are still in a big trading range of $820 to $920 for a while," he said.
The US Federal Reserve stepped forward as a commercial lender of last resort and signaled a readiness to cut interest rates as pressure mounted for a coordinated, international response to the most dangerous financial shock since the Great Depression.
Platinum was trading at $957.50 an ounce, down $46.50 from New York's notional close to track weaker gold, having regained $1 000 on Tuesday.
Platinum has been hit by heavy selling on fears of falling demand for autocatalysts. It tumbled to $920 an ounce on Monday, its lowest level since November 2005, on the back of poor car sales, especially in the United States.
Prices are well below a lifetime high of $2 290 an ounce struck in March.
New York gold futures added $3.7 an ounce to $885.9 an ounce on the COMEX division of the New York Mercantile Exchange.
- Reuters