Gold fell on Wednesday as the dollar surged and strong US private sector jobs data dented safe-haven buying, but bullion ended off its lows as commodities rebounded on an improving economic outlook.
A report showing three times more hiring than forecast for US private sector jobs boosted prices of oil, metals and grains at midday after all fell in early trade as the dollar strengthened and Tuesday's profit-taking retreat carried over.
"A lot of gold's weakness has to do with the fact that investors believe economic performance is going to pick-up as we start 2011," said James Dailey, portfolio manager of the Team Asset Strategy Fund.
Some investors said the rise in gold and other commodities was too much and too soon, as they unwound solid gains made on thin volume over the holidays, when silver hit a series of 30-year highs and palladium touched a near 10-year peak. Gold had come within USD 10 of a new all-time high on Monday.
Spot gold fell 0.3% to USD 1,376 an ounce at 3:57 pm EST (2057 GMT). Earlier, it fell more than 1% to session lows at USD 1,363.80, a day after it lost 2.5% to its biggest one-day loss since early November in a profit-taking commodities rout. US February gold futures settled down USD 5.10 at USD 1,373.70.
Gold had gained nearly 30% in 2010 to a record USD 1,430.95 on December 7.
Spot silver dropped 1.5% to USd 29.32 an ounce.
US gold and silver futures volume was noticeably higher than recent weeks' for a second straight day. COMEX gold and silver turnover were both about 20% higher than their 30-day averages.
"There is no doubt that if the economic news continues to come out in a positive manner, that should add more pressure on gold as people feel more comfortable and secure in currencies and other vehicles," said Miguel Perez-Santalla, vice president of sales at Heraeus Precious Metals Management.
Technical resistance also weighed down on gold, which has risen toward the USD 1,420 an ounce level three times since November but failed each time.
Independent investor Dennis Gartman said that gold would fall toward the USD 1,300-1,320 area if prices dropped below a trend line connecting bullion's lows in October and November.
Other analysts said economic uncertainty such as concerns over sovereign risk in the euro zone should firmly underpin demand for gold as a safe-haven investment.
"I don't think this marks a turnaround from what has been and continues to be bullish sentiment towards gold and hard assets in general," said Credit Agricole analyst Robin Bhar.
"The ADP (job) numbers and the recent raft of economic numbers are good to see, but it's not a one-way bet that this market is in a solid economic uptrend," he said. "There are still a lot of banana skins along the way."
Payrolls in focus
The ADP report for December comes two days ahead of the key December nonfarm payrolls report, which is forecast to show a rise in jobs.
Reflecting waning investor appetite for gold, holdings of the world's largest gold exchange traded fund, the SPDR Gold Trust , fell to a seven-month low, reversing most of the inflows that followed the euro zone debt crisis.
Silver fell for a third consecutive session, under pressure from the strength in the dollar and a decline in other growth-linked assets such as base metals.
Silver, which can mimic gold's performance when investors feel nervous about the broader financial markets, is also an industrial commodity that can take its cue from higher-risk assets such as stocks and base metals.
Adding to the pressure on silver was the third daily rise in the gold/silver price ratio, which measures the number of ounces of silver needed to buy one ounce of gold.
The ratio fell by a third to multi-year lows in 2010 as silver outperformed gold with an 84% price rise.
Platinum group metals was weaker in tandem with gold and silver despite stronger December US auto sales data.
Spot platinum fell 1.8% to USD 1,721.49, while palladium lost 0.4 percent to USD 771.72.
Prices at 3:59 pm EST (2059 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US gold 1373.70 -5.10 -0.4% -3.4%
US silver 29.198 -0.310 0.0% -5.6%
US platinum 1730.30 -12.80 -0.7% -2.7%
US palladium 775.30 6.25 0.8% -3.5%
Gold 1376.40 -3.33 -0.2% -3.0%
Silver 29.30 -0.47 -1.6% -5.1%
Platinum 1721.49 -31.75 -1.8% -2.6%
Palladium 771.72 -3.25 -0.4% -3.5%
Gold Fix 1368.00 -14.75 -1.1% -3.0%
Silver Fix 29.21 -146.00 -4.8% -4.6%
Platinum Fix 1722.00 13.00 0.7% -0.5%
Palladium Fix 754.00 10.00 1.3% -4.7%