NEW YORK/LONDON (Reuters) - Gold fell in choppy trade on Friday but finished well above session lows as a dollar rally fizzled and investors bet that the metal’s unique safe-haven appeal would stay intact in the wake of Dubai debt default fears.
Renewed credit fears initially forced investors to heavily sell gold and raise cash to cover losses in equities as well as oil and other commodities.
Bart Melek, global commodity strategist at BMO Capital Markets, said that gold later recovered some ground due to a combination of flight-to-quality demand and as the dollar rally lost steam.
“This sell-off is predicated on concerns about the fragility of the financial system. It reminds investors that there are still huge risks out there,” Melek said.
For a graphic on the performance of various assets due to Dubai debt fears: here
Spot gold cut losses and was at $1,172.90 an ounce by 1:20 p.m. EST (1820 GMT), but was still down from the $1,192.60 quoted late on Thursday. Bullion hit a low of $1,136.80 an ounce, the lowest since November 20.
Earlier in the session, the precious metal hit a record high of $1,194.90, driven by expectations that central banks from emerging countries will keep buying bullion from the International Monetary Fund.
U.S. December gold settled down $12.80, or 1.1 percent, at $1,174.20 an ounce in the COMEX division of the NYMEX.
“We’ve dropped around $60 today, which has given the people who haven’t been able to join the first rally a chance to enter the market,” said Ole Hansen, senior manager at Saxo Bank.
“The rally for now could be a little bit subdued as we will run into profit taking as we go into December. But, the strong way it’s coming back up today could bode fresh highs next week.”
Dubai said on Wednesday two flagship firms planned to delay repaying billions of dollars in debt. State-backed Dubai World has $59 billion of liabilities — a big chunk of the emirate’s total debt of $80 billion.
That has raised the specter of default and triggered a sell-off of risky assets such as commodities and stocks.
Gold, a traditional safe haven, has also been sold because the higher dollar makes the precious metal more expensive for holders of other currencies.
But the dollar trimmed its gains against a basket of currencies and was up only around 0.2 percent, compared with 0.8 percent earlier in the day. <USD/>
Analysts said some of gold’s resilience stemmed from expectations of gold purchases by central banks in emerging markets.
Earlier this week the International Monetary Fund said it had sold 10 tons of gold to the Central Bank of Sri Lanka, adding the sale was part of the 403.3 tons approved by its executive board in September.
The IMF has already sold 202 tons to the Reserve Bank of India and the Bank of Mauritius.
Other precious metals also bounced from lows. Silver was at $18.24 an ounce after hitting a two-week low of $17.66 an ounce, while platinum and palladium touched one-week lows of $1,418.50 and $351 an ounce respectively.
Platinum was at $1,437 an ounce from $1,452 and palladium at $361 an ounce from $368.
Additional reporting by Humeyra Pamuk and Veronica Brown in London; editing by Jim Marshall