Tokyo - Gold eased on Wednesday as investors took profits a day after it hit record highs despite the dollar's strength, but sentiment improved on bullion's growing status as a destination for a diversifying official reserves.
Weakness in equities markets, resurfacing worries about the US and European banking sectors and expectations for US interest rates to remain low for some time are favouring gold as a safe-haven asset, analysts said.
Commodities markets, especially gold, are favoured by trend-following funds and news of India's central bank buying a large amount of gold from the International Monetary Fund was taken as reinforcing such bullish sentiment and keeping up the buying momentum.
"It's all driven by funds and their bullish sentiment, which was reinforced by news of the IMF sale of gold to India," said Kazuhiko Saito, chief analyst at Fujitomi in Tokyo.
He said there was relief India was the buyer as the country's official gold holdings are low relative to Europe, and India therefore is not seen as being in haste to sell bullion.
"Gold may test $1 100 in the near term" if the US Federal Reserve maintains its pledge for low interest rates when policy makers conclude a two-day meeting later on Wednesday, he said.
Gold swept to a record high on Tuesday despite the dollar's rise as the IMF's 200-tonne sale of gold to India underscored gold's increasing status as an official reserve and fuelled speculation that other governments including Beijing may be ready to diversify their reserves.
"Once we broke above the previous record of $1 070 we got momentum buying. It is more of a technical move," said Adrian Koh, an analyst at Phillip Futures in Singapore.
Spot gold was at $1 081.60 per ounce at 02:40 GMT, down 0.3% from New York's notional close of $1 084.50. On Tuesday, spot gold hit an all-time high of $1 087.45.
US gold futures for December delivery inched down 0.2% to $1 082.70 per ounce, compared to $1 084.90 an ounce on the Comex division of Nymex. Futures hit a record high of $1 088.50 on Tuesday.
The market surge was also reflected in investment flows.
The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings rose to 1 108.399 tonnes as of November 3, up 4.88 tonnes or 0.4% from the previous business day.
Japanese financial markets were closed on Tuesday for a public holiday.
The dollar steadied on Wednesday after climbing to a one-month high against a basket of major currencies the previous day when concerns about the global banking sector reignited safe-haven demand for the greenback.
Gold market participants including banks, miners and investment funds gathered for the London Bullion Market Association's annual conference in Edinburgh, which ended on Tuesday.
- Reuters