Gold edged higher on Wednesday, driven by a pickup in the euro and by a rise in exchange-traded fund holdings to record highs, although caution ahead of a crucial European Union summit this week will likely limit gains in the bullion price. European Union leaders meet on Friday and are under pressure to provide a lasting solution to the debt crisis, which now threatens the finances of the entire 17-member bloc.
Ratings agency Standard & Poor's shocked markets on Tuesday by putting the credit ratings of all eurozone members, including those of Germany and France, under review, meaning a downgrade could materialise within 90 days. Weakness in the euro can make it more profitable for eurozone investors to sell gold in exchange for dollars. This week's 0.4 percent decline in the euro has coincided with a rise in ETF holdings of gold to a fresh record above 70 million ounces.
Spot gold rose 0.5 percent to $1,735.74 an ounce by 1459 GMT, set for a second consecutive day of gains. "Such a big unknown event risk is making people quite cautious and, heading into year-end as well, no one really wants to take any positions and it adds to that lack of interest in the market," Standard Chartered analyst Daniel Smith said. Gold hit a record $1,920.30 in September and is trading up almost 22 percent in the year-to-date. On Wednesday it held below its 100-day moving average at $1,727.73, and analysts reckon events this week could test the precious metal's resilience.
Although gold is regarded as a safe haven asset to shield investors in times of uncertainty, it has increasingly become prone to pressure from the wider financial market, moving in tandem with other risk-linked assets as crumbling confidence in stocks, bonds and currencies makes investors keener to get hold of cash. Spot silver slipped 0.5 percent to $32.59, while platinum slipped 0.4 percent to $1,513.25 an ounce.
The gold-platinum spread widened to $220 an ounce on Tuesday, its widest since Reuters started recording prices in 1985. Platinum has traded at a discount to gold for the past three months - the longest period since 1985, as the metal, mainly used in jewellery and autocatalysts, has lost some of its appeal to investors in the current environment of economic uncertainty.
Flows of metal into ETFs, which were robust earlier in the year, have turned into outflows in the last three weeks, bringing total holdings of platinum in the major ETFs tracked by Reuters to their lowest in a year. Spot palladium rose 1.3 percent to $675.50. The palladium price has rallied by nearly 30 percent since hitting one-year lows in September.
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