Gold retreats from two-month highs

Gold turned lower on Wednesday after an initial rally to above US$1,250 an ounce fizzled, as strong US manufacturing data boosted investor appetite for riskier assets such as stocks, decreasing bullion's appeal as an alternative investment.

Platinum group metals climbed on better economic sentiment, as PGMs are largely consumed as catalytic converters by the auto industry.

Gold in early trade rose as high as US$1,254.65 an ounce, about US$10 below its all-time high at US$1,264.90 set on June 21.

However, the metal struggled to maintain those gains as investors worried the market may have run ahead of itself, after data showed the US manufacturing sector expanded for a 13th straight month in August. S&P 500 index rallied almost 3 percent.

James Steel, chief commodity analyst at HSBC, said the fact that gold held relatively firm in the face of a sharp equity-market rally showed the bullion market is well supported.

"Right now an increase in risk appetite has undermined gold, whose safe-haven appeal has diminished but the market is still well bid. It shows good underlying support for gold as economic uncertainty remains in the background," Steel said.

Spot gold was at US$1,244.25 an ounce at 1:53pm EDT (05:53am NZT), from US$1,248.99 late on Tuesday in New York.

US gold futures for December delivery settled down US$2.20 an ounce to US$1,248.10.

Rising open interest in COMEX gold futures suggested prices could rally to its record high, boosted by buying by funds and institutional investors, analysts said.

"Comex open interest has started to improve, which is good," said Simon Weeks, head of precious metals at the Bank of Nova Scotia.

"But I would also like to see much more in the way of investment coming in both in ETFs and in particular via cross currencies as that will prove that gold is acting as a currency in its own right."

On the investment side of the bullion market, holdings of the major gold and silver exchange-traded products, which issue securities backed by physical stocks of the precious metals, rose on Tuesday, suggesting healthy investor interest.

The world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, added another 4 tons of metal to its stocks.

The SPDR reversed July's outflows to record a monthly gain in its holdings in August. Swiss bank UBS said gold holdings of the 12 ETFs it tracks rose 1.38 million ounces in August.

The largest silver ETF, the iShares Silver Trust, also increased its holdings by more than 30 tons.

Spot silver prices rose to their highest since mid-May on Wednesday at US$19.54, and was last at US$19.34, unchanged from Tuesday.

Platinum was at US$1,529 an ounce against US$1,516.40.

Palladium was at US$517 against US$496.70.

The metal had risen more than 6 percent to peak at US$527.50, its highest since mid-May, due to earlier strength in gold prices and weakness in the dollar.

- Reuters