Gold surged to a record high just under $900 on Wednesday, powered by heavy investor buying and helped by firm oil and a strong debut for Shanghai gold futures, but it later slipped below previous day's closing level.
Profit-taking, a recovery in the dollar and some weakness in oil prices contributed to gold's decline. Platinum pared gains after hitting lifetime highs.
Spot gold saw volatile trading, with prices jumping as high as $891.40 an ounce and falling to $871.60. It was quoted at $875,60/876.30 at 10:40 a.m. EST, against $878.10/878.90 in New York late on Tuesday.
These sell-offs are just temporary, giving people some breathing space. Every so often there is some profit-taking, but gold is bought on every dip, said Peter Hillyard, head of metals sales at ANZ Investment Bank.
We are in a bull market and it's not over yet. The funds are piling in and the market is expecting gold to move through $900 quite soon, probably within a week. You are going to see gold make its way to $1,000 over the next six months.
The dollar rebounded late on Wednesday on technical buying, but a speech by the Federal Reserve chief and key central bank meetings scheduled on Thursday confined trading to tight ranges.
A firmer dollar makes gold costlier for holders of other currencies and often lowers bullion demand. The metal is also generally seen as a hedge against oil-led inflation.
Oil eased below $96 a barrel after rising.
Clearly, the jewellery demand is suffering as a consequence of the high price, but it's being more than offset by broad-based global investor demand in gold, said David Holmes, director of metals sales at Dresdner Kleinwort Investment bank.
The market gained momentum overnight after the key Japanese gold futures price <0#JAU:> hit its highest level since March 1984 and gold futures were launched on the Shanghai exchange.
The contract surged to nearly $1,000 an ounce on Wednesday, as enthusiastic new bullion bulls bid a hefty premium over their global peers.
The launch of the Shanghai gold futures contract seems likely to be the trigger for gold to hit our one-month target of $900/oz, probably before the end of the week, UBS Investment Bank said in a daily client note.
OTHER BULLION MARKETS
In other bullion markets, U.S. gold futures eased after early gains. The most active February contract rose as high as $894.40 an ounce before falling to $879.40, down $0.9 from its previous close in New York.
The key gold futures contract for December 2008 delivery on the Tokyo Commodity Exchange (TOCOM) finished at 3,134 yen a gram, up 37 yen or 1.2 percent from Tuesday.
It looks like the gold market wants to see and test the $900 level. I could imagine that there will be some long liquidation by then at the latest, said Alexander Zumpfe, a metals trader at Germany's Heraeus.
Spot gold rose more than 30 percent in 2007, its biggest annual gain since 1979. Traders said gold was becoming more appealing as the market sought higher returns with U.S. shares slumping and prospects for the U.S. economy deteriorating.
Goldman Sachs said it expected the U.S. economy to drop into recession this year, prompting the Federal Reserve to slash benchmark lending rates to 2.5 percent by the third quarter.
Investment interest was reflected by strong inflows into exchange-traded funds, with the metal held in New York-listed StreetTRACKS Gold Shares, the world's top ETF based on gold, hitting a record 639.35 tonnes by Jan 8.
Platinum rose as high as $1,560 an ounce and was last quoted at $1,550/1,554, versus $1,547/$1,552 late in New York.
Palladium fell $3 to $373/377 an ounce, while silver rose to 2-month high of $16.14 an ounce before falling to $15.54/15.59, against $15.70/15.75 in New York.
(Additional reporting by Chikafumi Hodo in Tokyo)
(Editing by Peter Blackburn)