Gold falls as dollar rebounds

Tokyo - Gold prices erased earlier gains and fell on Monday, as the dollar rebounded on short-covering and dragged down other commodities and equities.

Gold prices topped $1 000 per ounce last week and closed above that level on Friday for the first time since March 2008, as investors sold the dollar to buy higher-yielding and riskier assets on growing optimism about the outlook for the global economy.

Some traders have questioned whether gold's current high levels can be sustained, as much of its recent rally has been driven by funds emboldened by favourable technical charts while physical demand and that from individuals remain weak.

"The dollar's rebound was the trigger," Ben Westmore, a commodities economist at National Australia Bank, said of gold's retreat. "Gold may be pressured by some unwinding of holdings by funds."

Westmore said investors were likely adjusting their outlook for demand, refocusing on the view that growth was likely to wane after stimulus measures from governments fade, and a V-shaped recovery is unlikely.

He added that investors may be reassessing commodities' stockpile data that suggests fundamentals remain weak, as well as their attitude towards China, whose imports have helped push up prices across markets.

But he said while growth in demand may slow, this new round of market correction was unlikely to dent demand.

Spot gold eased 0.4% to $1 000.40 as of 07:24, after rising 0.4% to a high of $1 008.70 per ounce earlier on Monday. New York's notional close was $1 004.85. It hit $1 011.55 on Friday, its highest since March 2008.

US gold futures for December delivery fell 0.5% to $1 001.8 per ounce, slipping from an earlier high of $1 010.8.

Futures stood at $1 006.40 an ounce on the Comex division of the New York Mercantile Exchange. Friday's session high was $1 013.70, the highest since February 20.

The dollar rose broadly on Monday with the Australian and New Zealand dollars falling about 1% against the greenback as investors covered short dollar positions, making waves across other markets.

The dollar index, a gauge for the greenback's performance against six other major currencies, rose 0.4% to 76.917, off its one-year low of 76.457 struck on Friday.

Despite gold's recent rally, holdings at the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, stood at 1 077.63 tonnes as of September 13, unchanged from the previous business day.

But noncommercial net long US gold futures positions rose to 224 676 lots in the week to September 8 from 184 501 lots, a weekly report by the US Commodity Futures Trading Commission showed.

The drop in gold prices pulled down other precious metals, with silver down 1.7% to $16.45 from $16.74. On Friday it hit its highest level since early August 2008 at $16.97.

Platinum fell 1.2% to $1 299.50 from $1 315.50, after touching a 1-year high of $1 317.50 an ounce earlier on Monday.

- Reuters