Gold held on to the gains of the past two days on Wednesday, driven by mounting concern about the
risk of Ireland's debt crisis spreading to other euro zone economies, pushing bullion in euros to its highest since June. A deadly exchange of military fire between North and South Korea on Tuesday further unsettled investors, putting Asian stocks under pressure and encouraging a sweep into perceived safe havens such as gold, government bonds and the Swiss franc.
In spite of the dollar hitting two-month highs against a basket of currencies .DXY, gold XAU= was last steady at
$1,375.99 an ounce at 1030 GMT, having earlier risen by as much as 0.4 percent above $1,381.00. U.S. gold futures GCZ0 dipped 0.2 percent to $1,375.80.
"Gold's been gritting its teeth in the last couple of days and going contrary to what one might have expected with the dollar move and really that has to boil down to the uncertainty," said Ole Hansen, senior manager at Saxo Bank. "We've got political risk from the Korea situation and then more importantly...people are talking about the potential of the euro not surviving. I don't see that happening but just the fact that it is being talked about is enough to raise the bar."
The euro hit two-month lows on Wednesday as spreads on peripheral euro zone bonds, such as Portugal and Spain, hit record highs, while gold priced in euros XAUEUR=R rallied to its highest level since early June. PAIN
In Ireland, the government said it will explain on Wednesday how it plans to save 15 billion euros over the next four years, inflicting more pain on voters to prove that it can tackle the country's debt.
"I am not sure if the market is completely convinced that the tension would lead to something more," said Darren Heathcote, head of trading at Investec Australia in Sydney. "I think it's being pushed and pulled by the euro as well at the moment." Bullion dealers in Singapore noted selling of gold bars and scraps from consumers in Indonesia and Thailand, but China saw buying on dips related to the tension in Korea.
Gold's negative correlation to the U.S. dollar reached its weakest since mid-September on Wednesday as nervous investors ditched the euro and other risk-related assets such as stocks and corporate debt. In terms of factors fuelling a bid for safe-haven investments, Michael Widmer, a strategist with Bank of America-Merrill Lynch, said the euro zone debt crisis was the dominant one.
"If you go back through the past ten or 20 years, you look at how gold prices react to geopolitical uncertainty, those uncertainties were relatively positive, but you don't tend to see a sustainable impact on prices if it's just a one-off and that is probably the same thing time around as well," he said, referring to the tensions between the two Koreas. Holdings of gold in the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust (GLD) held unchanged for a second day, indicating no large-scale withdrawal from gold by investors.
Silver XAG= eased, releasing earlier gains to last trade at $27.41 an ounce, down 0.3 percent on the day. The ratio of silver to gold rose for a second day above 50, reflecting the outperformance of gold as it now takes more ounces of silver to buy one ounce of bullion.
Holdings in the iShares Silver Trust (SLV), the world's largest physically-backed exchange-traded fund, rose to record highs for three consecutive sessions, signalling strong investment demand in the metal, seen as an alternate investment from gold. Platinum XPT= rose 0.5 percent to $1,654.99 an ounce, recovering from two straight days of declines, while palladium XPD= fell for a third day, down 0.4 percent at $683.72, ahead
of the release of economic data in the United States including weekly jobless figures, monthly durable goods orders and new home sales. The U.S. economy grew faster than previously estimated in the third quarter, but a slump in sales of previously owned homes in October indicated the recovery remains too anaemic to reduce high unemployment.