Gold slipped to its lowest since late July in Europe on Monday as the dollar firmed against a basket of currencies and as a 2 percent decline in crude prices dented the precious metal's appeal as an inflation hedge.
Silver tumbled more than 3 percent after hitting a two-month high on Friday, meanwhile, as a slide in global equity markets prompted a rise in risk aversion, boosting the dollar versus the euro but knocking prices of industrial commodities.
Spot gold hit a low of $937.10 an ounce and was bid at $938.40 at 4:56 a.m. EDT, against $945.85 late on Friday. U.S. gold futures for December delivery on the COMEX division of the New York Mercantile Exchange fell $8.40 to $940.20.
(Gold) is still forex driven, said Michael Kempinski, senior gold trader at Commerzbank. The euro/dollar is stuck in the range and going down to the low end again.
He said disappointment that gold had failed to build on gains that took it to a two-month high above $970 an ounce in early August had prompted some investors to sell gold.
Physical demand is not strong enough to absorb the selling, he added. We think we will see more at $925. The largest gold-backed exchange-traded fund, the SPDR Gold Trust, said it saw no new inflows on Friday.
The dollar firmed against a basket of six major currencies .DXY as risk aversion rose in the wider markets, prompting buying of the U.S. unit as a haven from risk.
A firmer U.S. currency usually weighs on gold, as it makes dollar-priced assets such as bullion more expensive for holders of other currencies and dents interest in the precious metal as an alternative asset.
Caution over the outlook for the global economy also battered stock markets, with European shares tumbling a further 2 percent on Monday after retreating on Friday. .EU
World stocks and U.S. stock futures meanwhile slid 1 percent after Asian shares tumbled, with the benchmark MSCI world equity index .MIWD00000PUS heading for its biggest one-day loss since early July. .N
Stock market losses and the stronger dollar also knocked bellwether commodity oil. Weak consumer sentiment data in the United States raised worries crude's recent rally has run ahead of the global economic recovery.
Base metals also slipped, pressuring silver, which as well as being bought as an investment metal like gold is also widely used in industries such as electronics manufacturing.
Silver hit a two-month high of $15.16 an ounce on Friday amid hopes the U.S. recession was bottoming. The gold/silver ratio rose to 66 from around 63 in the last session, suggesting the metal is becoming a less attractive bet compared to gold.
Meanwhile the world's biggest primary silver producer, Fresnillo (FRES.L), said its silver production is expected to rise 2-3 percent in 2010.
Spot silver was bid at $14.26 an ounce against $14.68. Elsewhere platinum was at $1,235 an ounce against $1,254.50, while palladium was at $269 against $273.50.
Commerzbank analyst Eugen Weinberg said industrial precious metals such as autocatalyst materials platinum and palladium were likely to suffer along with base metals such as copper from fears optimism over the economic outlook had been overdone.