Gold steadied in Asia on Friday after the metal's rise to its highest level in nearly 18 years sparked heavy fund selling. The physical sector was quiet as volatility put jewellers off while a holiday in Japan limited activity. But dealers said uncertainty about the US economy and inflation worries from high oil prices could provide some support.
Spot gold hardly changed from New York levels at $465.50/466.20 an ounce in afternoon trade. "Gold has gone too far too quickly. There's not much going on in Asia and it is probably a $464 to $467 market," said one dealer in Singapore, a centre for bullion trading in Southeast Asia. Gold climbed to $475 an ounce in Asia on Thursday, its highest level since January 25, 1988, on fund buying driven by worries about the impact of Hurricane Rita on oil producing plants in the United States.
Expensive oil normally boosts gold's appeal as a hedge against inflation. But profit-taking later kicked in and selling intensified after Rita was downgraded to a Category 4 hurricane on Thursday.
Profit taking had pulled gold prices to a low of $462.60. As Rita lost intensity, US crude oil fell to $66 a barrel. In Japan, the Tokyo Commodity Exchange was closed for Autumn Equinox Day, a national holiday.
The benchmark August gold contract rose to a fresh 14-year high on Thursday, tracking gains in spot gold.
The key contract closed up 27 yen at 1,708 yen per gram, it's highest since August 1991.
The physical sector showed little activity in Asia and heavy selling the previous day cut premiums for gold bars to zero from 10 US cents an ounce to the London spot price in Hong Kong, a key bullion trading city in East Asia.
High bullion prices normally curb physical demand in Asia and encourage investors to cash in their gold bars. But in general, players remained bullish on gold, which is expected to reach the $500 mark in the longer term.
"Most people are still bullish. The funds just entered the market at $450 and above. It's not so easy to squeeze them out," said Ronald Lunge, director of Lee CEng Gold Dealers in Hong Kong. "For the time being, $464 seems to be quite a good support. I think the market should be trading at $464 to $472 today. The physical (market) is very quiet.
There's not much buying interest because the price is still high," he added. In other precious metals, silver rose to $7.35/7.37 an ounce from $7.33/7.36 an ounce in New York.
Platinum rose to $924/928 an ounce from $922/926 last quoted in New York but off a 17-month high at $933 hit on Thursday. Palladium inched up to $196/200 an ounce from $195/200.