LONDON -- Gold extended losses on Friday to touch a fresh one-week low as a general sell-off across asset markets prompted bullion speculators to trim their positions.
Other precious metals also fell to their lowest in about one week, but physical buyers and bargain hunters were expected to prevent collapse, analysts and traders said.
Analysts saw more possible position reductions across asset markets and said precious metals might have further to fall before recovering.
"We are in an environment which will be quite long-lived, not just a 24-hour or 48-hour risk aversion event. I think it's more likely to be a week or two rather than a day or two," said John Reade, head of metals strategy at UBS Investment Bank.
"(But) I am not looking for a collapse."
Story Continues Below
Gold fell as low as $652.30 an ounce and was quoted at $654.30/655.80 by 1403 GMT, against $659.50/660.00 in New York late on Thursday, when it fell about $10.
The general sell-off that started on Thursday was triggered by fears of higher interest rates in the United States.
The sharp rise in Treasury yields — Thursday's move was the biggest one day jump in 10-year yields in over three years — marked the first time since July 2006 that the entire yield curve was above 5 percent.
"Rising US interest rates — 10 year bond yields ... also imply less support for gold," J.P. Morgan said in a research note. "Higher interest rates also dim gold's lustre through decreasing the pent up inflation risk."
Investors were looking to falling equity markets as global stock sell-offs had prompted U.S.-based investors to liquidate some foreign equity holdings, benefiting the dollar.
Japan's Nikkei share average <.N225> fell 1.5 percent, while the UK's leading share index fell 0.7 percent, losing for a fifth day in a row.
The dollar rose broadly as higher U.S. Treasury yields and a report showing a narrower-than-expected trade gap in April boosted demand for the currency. "Inflationary pressures will continue to fuel speculation over interest rate hikes in the U.S. that could strengthen the dollar, which is a negative for the gold price," Numis Securities said.
Earlier this week, gold touched $673.95, the highest since May 14, but has lost about $20 since then.
"As long as the American economy looks to be gathering momentum, a lid is likely to be kept on gold," Fortis Bank said in a research note.
"Any geopolitical uncertainty ... will send gold shooting upward as it retains much of its traditional safe haven status. But on current prospects $700/oz still looks from here like an uphill slog."
In other precious metals, platinum reversed early gains to fall to $1,288/1,292 an ounce after rising as high as $1,305, compared with $1,287/1,293 in New York.
Spot palladium was at $368/371 an ounce, up $2 from the New York level, while silver fell to $13.31/13.35 an ounce from $13.44/13.47.
© Reuters 2007. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters.
Editor's note:
Four Digit Gold Prices a Reality - Find Out How
Get Mega-Profits from Today`s 9 Mega-Trends
Double or Triple Your Money With Energy and Precious Metals Stock Options
