(Recasts, updates with quotes, prices)
By Atul Prakash
LONDON, Feb 26 (Reuters) - Gold fell more than 1 percent on
Tuesday on possible gold sales by the International Monetary
Fund, but pared losses in the European afternoon on a weaker
dollar.
Spot silver hit a 27-year high of $18.21 an ounce, as some
investors considered the metal relatively cheaper against other
precious metals, analysts said.
The United States said on Monday it supported the sale of a
limited portion of the IMF's gold stocks and was confident
Congress would support the move. The U.S. Treasury had earlier
resisted seeking Congressional approval. []
"The market is capped because of this IMF sales news. It
would be healthy for the market if it dropped back to low $900s.
Then it has a better chance to make an assault on $1,000," said
Peter Hillyard, head of metals sales at ANZ Investment Bank.
"The dollar would have to get a lot weaker for the market to
ignore that and just push through," he said, but added that any
price dip or dollar weakness might attract some buying.
Spot gold <XAU=> fell as low as $926.40 an ounce and was
quoted at $937.60/938.30 at 1522 GMT, against $937.80/938.60 in
New York on Monday and off last week's record high of $953.60.
The IMF is the world's third-largest gold holder, with 3,217
tonnes of reserves. Any sale of IMF gold might be done in
accordance with a European Central Bank gold accord, which
limits total gold sales to 500 tonnes a year, analysts said.
"It is a material development and suggests that it could
actually get through. That's a genuine change because the market
was assuming otherwise," said Stephen Briggs, economist at SG
Corporate and Investment Banking.
"In itself, it won't be a huge thing but it is definitely
something that the market was not expecting. Gold was already
overdue a correction after this run and this is a good enough
excuse. It has taken steam out of gold for the time being."
DIPS ATTRACT BUYERS
The physical market was abuzz with activity as gold's fall
attracted bargain hunters as well as purchases from jewellery
makers, mainly from Indonesia and Vietnam.
Some analysts said the metal had potential to spike again
after consolidating its position. It rose 14 percent this year
on the top of 32 percent gains in 2007.
"Strong buying on dips is likely to be witnessed outweighing
temporary liquidations on such news, which are quite common when
there are sharp price rises," said Pradeep Unni, analyst at
Vision Commodities, referring to IMF gold sales news.
"Gold should trade strong for most of this year, at least
till mid-2008," he said in a market note, adding the dollar was
expected to remain weak in the near- to medium-term.
The dollar fell against the euro after a forecast-beating
German business sentiment survey dampened the case for near-term
interest rate cuts from the European Central Bank.
A weaker dollar makes gold cheaper for holders of other
currencies and often lifts bullion demand.
In other precious metals, silver <XAG=> rose to $18.23 an
ounce, the highest level since December 1980. It was last quoted
at $18.23/18.28 an ounce, against $18.07/18.12 late on Monday.
Platinum <XPT=> dropped 2 percent before paring losses. It
fell as low as $2,090 before rising to $2,116/2,126 an ounce,
against $2,135/2,145 in New York and a record high of $2,192.
Palladium <XPD=> fell $2 to $518/523 an ounce.
(Reporting by Atul Prakash; editing by Chris Johnson)
