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Gold dips on dollar rise but seen supported

Spot gold was at $670.30/670.90 an ounce at 1005 GMT, down from $672.30/672.90 in New York late on Friday, when it hit a low of $658.10 before rebounding as the US Federal Reserve pumped money into the banking system.

“More volatility across the precious metals complex appears likely as global financial markets have yet to calm and we expect gold will continue to perform as it has from the start -- simultaneously functioning as a source of liquidity and as a safe-haven asset,” Deutsche Bank said in a market report.

“With many funds tied up across a variety of asset classes, gold will likely again suffer from sell-offs if funds need to cover losses elsewhere.”

The euro weakened to session lows against the dollar after the European Central Bank said it would inject liquidity into the euro zone banking system for a third day.

The central bank operations are aimed at calming financial markets, which have been rocked for weeks by news of problems in banks and funds exposed to risky investments in US mortgage and asset-backed markets.

Markets are worried that the cheap credit which helped fuel global growth might dry up.

Central banks in Europe, Asia and North America injected huge sums into the money market late last week. The trend continued on Monday when the Bank of Japan added $5.1 billion.

“People are still looking to what’s happening on the credit market,” said Michael Widmer, director of metals research at Calyon Corporate and Investment Bank.

“Looking through the last few weeks, whenever volatility on the market was high, gold generally sold off. So less volatility as such should be positive for the gold price.”

Gold traditionally has been used by investors as protection against economic and political uncertainty. But in recent months it has behaved much like other financial assets because of the growing role of commodities in diversified portfolios.

“The gold market is still very nervous. Many people are willing to take a wait-and-see stance because of unstable stocks, currencies and credit markets,” said Tatsuo Kageyama, an analyst at Kanetsu Asset Management in Tokyo.

“Uncertainty in financial markets is very worrying, but so far we haven’t seen a major outflow of funds from gold. It’s possible that investors are treating gold as a last resort of investment,” Kageyama said.

In other metals, platinum was flat at $1,272/1,276 an ounce, but remained under pressure as South Africa’s National Union of Mineworkers reached a wage settlement with the world’s biggest platinum miner Anglo Platinum last week.

Silver was at $12.83/12.87 an ounce, up 1 cent from its close in Friday, when the metal tumbled to a five-week low of $12.57. Palladium was unchanged at $351/355 an ounce.