Gold retreats from record highs; dollar fights back

By Lewa Pardomuan

SINGAPORE (Reuters) - Gold extended losses from a record high on Thursday, surrendering as much as $8.60 an ounce as the dollar held on to its gains against the euro ahead of a testimony by U.S. Federal Reserve Chairman Ben Bernanke.

Spot gold fell to $880.50/881.50 an ounce from $885.60/886.30 late in New York on Wednesday, when it dropped more than 1 percent as funds liquidated positions to cover margin calls from losses in stock markets.

"That's really a reflection of possibly people's expectations of some weakness in the economy to come as a result of the U.S. On top of that, some profit taking is taking some buyers off the table to pay for margin calls," said Darren Heathcote of Investec Australia in Sydney.

"I think there'll be a little bit of recession, downward pressure on it. Maybe there won't be so much jewellery demand, but I think on the whole, the recent move has been reinfluenced significantly by the need to cover margin calls."

Gold hit a record high at $914 an ounce on Monday on expectations of a sharp cut in U.S. interest rates and turmoil in the financial markets triggered by a mortgage-related crisis.

Tokyo shares rose more than 1 percent on Thursday, bouncing back from two-year lows as a firmer dollar helped ease exporters' fears about a potential recession in the United States, the region's top overseas market.

"I believe there is a very good chance that we'll see gold recover, providing the stock market, particularly the U.S. stock market stabilises," said Heathcote of Investec.

He pegged support levels at $875 and $877, with resistance at $900.