NEW YORK/LONDON (Reuters) - Gold fell toward $920 an ounce on Monday on the back of a stronger dollar, as investors preferred the global reserve currency to bullion as a safe store of value amid fears over the economic outlook.
A flight to quality could still boost gold in the future, but a lack of imminent inflation signals has been weighing on the metal’s appeal as a hedge.
“At the moment, the safe haven money is more directed into bonds and the dollar ... and that is because of the low inflation level,” said James Steel, chief commodities analyst at HSBC in New York.
Gold rose toward $1,000 an ounce in early June because of a weakening dollar and inflation worries following massive economy stimulus plans by central banks around the world.
However, lingering deflation worries amid doubts about a global recovery and a resurgent dollar have since sent the price of gold back toward $900 an ounce.
Spot gold traded at $923.60 an ounce at 2 p.m. EDT, down from $932.30 an ounce late in New York on Friday.
U.S. August futures settled down $6.70 at $924.30 an ounce on the COMEX division of the New York Mercantile Exchange.
“There is a sell-off with the dollar strength,” said Standard Bank analyst Walter de Wet. “Gold is holding up quite well, compared to the other commodities. At these levels, we might see some physical buying.”
The dollar, along with the yen, gained broadly on Monday amid fears over the economic outlook, which led investors to shun riskier assets in favor of currencies perceived to be safe.
Strength in the U.S. unit kept most dollar-priced commodities under pressure as it made them more expensive for holders of other currencies.
Investor confidence across the market has been subdued since weaker-than-expected jobs data from the United States last week.
Traders are awaiting fresh direction from the outcome of the G8 meeting later in the week.
OIL DROP DENTS INFLATION HEDGE
Oil fell to below $65 a barrel on Monday, having touched a five-week low earlier in the session, pressured by doubts over prospects for a recovery in the global economy and energy demand.
Other industrial commodities such as copper and aluminum also fell.
Elsewhere, the Bombay Bullion Association said demand for gold and silver from India, the world’s biggest bullion consumer, is likely to be pressured further this year by an increase in import duty in the budget for 2009/10.
“As it is, business was bad,” said the association’s head, Suresh Hundia. “This will make it worse.” Indian gold imports tailed off last year as prices rose.
Among other precious metals, silver tracked gold lower, falling to a near nine-week low of $13.00. It was at $13.03 an ounce against its Friday finish of $13.39.
Platinum eased to a low of $1,138.50 an ounce, its weakest since late May. It was last at $1,143 an ounce against $1,185.00, while palladium was at $240 against $248.50.
Additional reporting by Kylie MacLellan in London; Editing by Christian Wiessner
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