Gold fell in Europe on Wednesday, with the market feeling the pinch from a recovering dollar against the euro on prospects for aggressive monetary tightening in the United States, dealers said, although they didn't expect prices to slip drastically. The dollar was supported against the euro after U.S. Federal Reserve Chairman Alan Greenspan said on Tuesday that the central bank would do "what is required" to keep inflation in check. Greenspan's comments were interpreted by some dealers as a sign the Fed could move more aggressively than first thought to raise rates, which would raise the dollar's allure and dull gold's appeal as an alternative investment. Spot gold was trading at $388.25/390.00 per troy ounce by 1040 GMT, compared with $390.75/391.50 last quoted in New York on Tuesday. Dealers pegged key support at $385.
The euro fetched $1.2190/94 against the dollar, versus $1.2269 in New York late on Tuesday. "Falling short of clearing the 200-day moving average barrier (around $396.50) it looks now more likely again to test the key short-term support of $385," Andreas Maag of UBS investment Bank said in a daily report. "Again the currencies will have the final say and the shortened week is limiting the prospects for large moves," he added, referring to the closure of U.S. markets on Friday for the funeral of former U.S. President Ronald Reagan. ScotiaMocatta bullion director Simon Weeks said that the market looked set to trade between $388.00-392.00, adding that the market was more likely to test downwards towards the $370s overall, then break back up to $400 as the summer slowdown approaches. Gold, used for investment and jewellery, rose to a 15-year high of $430.50 an ounce in early January and almost reached that level again in April. In other metals, platinum fell amid heavy liquidation in Asia, sparked by a surging yen. Yen-based platinum slipped towards one-month lows. Spot platinum was quoted at $817.00/821.00, compared with $832.00/837.00 in New York. Palladium , with no other influences, tracked platinum down to $230.00/235.00, compared with $237.50/243.50. "We maintain our view that lower prices are possible in the short term since industrial consumers continue waiting for lower prices to start purchasing again. Our downside target therefore remains around 800," Dresdner Kleinwort Wasserstein said in its daily report.
Silver fell on the back of gold to $5.73/5.76, compared with $5.77/5.80 in New York on Tuesday. "The current weakness in gold and the lack of interest keeps silver in a vulnerable position to test $5.65," Dresdner said. Silver, which is used in electronics, photography and jewellery, has fallen by more than 30 percent since touching a near 17-year peak of $8.43 in April on speculative buying.///