NEW YORK/LONDON Gold drifted lower on Wednesday as some short-term investors took profits off the early rise to a one-week high above $1,237 an ounce, but declines in the euro and in U.S. share prices hit the yellow metal in late trade.
Spot gold slipped to $1,231.45 an ounce by 2:29 p.m. EDT from $1,232.45 an ounce in late Tuesday trade in New York. U.S. gold futures for August delivery ended $3.90 lower at $1,230.50 an ounce.
Analysts said they still think bullish factors underpin gold prices, which hovered around unchanged levels for much of the session. Concern about the unfolding debt crisis in Europe and the global economic outlook continued to provide support.
Bill O'Neill, managing partner at LOGIC Advisors in New Jersey said, news that Russia's central bank was looking to diversify its currency holdings, could have given gold a lift.
"When I saw that, it brought to mind that they're probably also looking to add some gold, which they have already done. I think those types of things indicate the alternative asset demand for gold is still there," said O'Neill.
Standard Chartered analyst Daniel Smith said the main focus for gold is on liquidity.
"So what's tending to happen is people are tending to buy gold and other assets at the same time," he said.
"We are going to push higher in the weeks ahead. The pullback we saw from the previous highs is quite limited and investors are still waiting to come into this market."
Gold hit a record high of $1,251.20 on June 8 and is now just over 1 percent away from this level, as the euro zone debt crisis has raised the risk of a slowdown in global economic growth and triggered a broad investor push into perceived safe-haven assets such as bullion or government bonds.
"The whole sovereign debt situation lingers on," said Ole Hansen, senior manager at Saxo Bank in Copenhagen. "There will be persistent fear that some government debt in Europe will have to be readjusted, and that will lend support (to gold)."
Fresh concern about Spain's banking and credit system knocked the euro off two-week highs against the dollar, and forced the premium investors' demand for holding Spanish debt over German bunds to a euro life high. <USD/>
A weaker euro, and consequently a stronger dollar, historically has had a negative impact for gold, but this correlation has broken down as investors have sought safety in the U.S. currency.
U.S. stocks slipped as a warning from FedEx (FDX.N), which said higher costs could crimp profits next year, overshadowed a surge in U.S. industrial production for May. .N.
SPDR ETF HOLDINGS AT RECORD
Interest in physical gold kept holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, at a record 1,306.137 tonnes on Tuesday.
Meanwhile, ETF Securities said its ETFS Physical Swiss Gold Shares surpassed $500 million in total assets under management as of June 8, when gold reached a record high.
The chief executive of PIMCO, the world's biggest bond fund, said on Wednesday it had cut exposure to gold on valuation. "At some point valuations became expensive and we halved our exposure to gold," Mohamed El-Erian told Reuters TV.
High prices are weighing on demand for gold in some key bullion markets, such as India and the Middle East, and encouraging more selling of scrap gold.
Istanbul Gold Exchange Chairman Osman Sarac told Reuters on Wednesday that Turkey's 2010 gold imports will not exceed 2 tonnes, versus an earlier forecast of 40 tonnes.
Spot silver eases to $18.46 an ounce by 2:27 p.m. EDT (1827 GMT) from $18.49 late in the previous session.
The gold-silver ratio -- how many ounces of silver are needed to buy an ounce of gold -- fell to its lowest this month on Wednesday, meaning the metal is becoming increasingly expensive compared with gold.
Spot platinum eased to $1,568.0 an ounce from
$1,572.50 an ounce late Monday, while palladium moved up to $472.00 against $469.50 per ounce previously.
(Reporting by Carole Vaporean; Editing by Sofina Mirza-Reid)