NEW YORK (Reuters) - Gold turned lower on Wednesday after an initial rally to above $1,250 an ounce fizzled, as strong U.S. manufacturing data boosted investor appetite for riskier assets such as stocks, decreasing bullion’s appeal as an alternative investment.
Platinum group metals climbed on better economic sentiment, as PGMs are largely consumed as catalytic converters by the auto industry.
Gold in early trade rose as high as $1,254.65 an ounce, about $10 below its all-time high at $1,264.90 set on June 21.
However, the metal struggled to maintain those gains as investors worried the market may have run ahead of itself, after data showed the U.S. manufacturing sector expanded for a 13th straight month in August. S&P 500 index rallied almost 3 percent.
James Steel, chief commodity analyst at HSBC, said the fact that gold held relatively firm in the face of a sharp equity-market rally showed the bullion market is well supported.
“Right now an increase in risk appetite has undermined gold, whose safe-haven appeal has diminished but the market is still well bid. It shows good underlying support for gold as economic uncertainty remains in the background,” Steel said.
Spot gold was at $1,244.25 an ounce at 1:53 p.m. EDT (1753 GMT), from $1,248.99 late on Tuesday in New York. U.S. gold futures for December delivery settled down $2.20 an ounce to $1,248.10.
Rising open interest in COMEX gold futures suggested prices could rally to its record high, boosted by buying by funds and institutional investors, analysts said.
“Comex open interest has started to improve, which is good,” said Simon Weeks, head of precious metals at the Bank of Nova Scotia.
“But I would also like to see much more in the way of investment coming in both in ETFs and in particular via cross currencies as that will prove that gold is acting as a currency in its own right.”
On the investment side of the bullion market, holdings of the major gold and silver exchange-traded products, which issue securities backed by physical stocks of the precious metals, rose on Tuesday, suggesting healthy investor interest.
The world’s largest gold-backed exchange-traded fund, New York’s SPDR Gold Trust, added another 4 tons of metal to its stocks.
The SPDR reversed July’s outflows to record a monthly gain in its holdings in August. Swiss bank UBS said gold holdings of the 12 ETFs it tracks rose 1.38 million ounces in August.
The largest silver ETF, the iShares Silver Trust, also increased its holdings by more than 30 tons.
The wider markets showed better appetite for higher-risk assets. Commodities rose broadly, with the Reuters/Jefferies CRB index rose nearly 2 percent. Oil rose more than 3 percent and base metals also rallied. <O/R> <MET/L>
Wall Street jumped on Wednesday as an increase in U.S. manufacturing activity and new signs of growth in China and Australia boosted investor confidence in the state of the global economy.
China’s manufacturing economy staged a moderate rebound in August after slowing for several months under the onslaught of government measures to rein in credit and deter property speculation.
Spot silver prices rose to their highest since mid-May on Wednesday at $19.54, and was last at $19.34, unchanged from Tuesday.
Platinum was at $1,529 an ounce against $1,516.40.
Palladium was at $517 against $496.70. The metal had risen more than 6 percent to peak at $527.50, its highest since mid-May, due to earlier strength in gold prices and weakness in the dollar.
Additional reporting by Jan Harvey in London;editing by Sofina Mirza-Reid