Gold Falls 1 Percent

Gold dropped more than 1 pct on Tuesday as the dollar gained against the euro and as the tentative return of risk appetite encouraged investors to book profits after bullion's rally to its highest in almost six weeks.

Gold sealed its biggest two-day gain since January 2000 on Monday and has rebounded more than 18 percent since tumbling to a 13-month low of $680.80 an ounce in late October, when a sell-off in equities forced investors sell gold to cover losses.

Spot bullion fell $4.15 an ounce to $815.40 an ounce from New York's notional close on Monday, when it touched a high of $829.20 as the dollar tumbled and as some traders read the U.S. government's rescue of Citigroup (C.N: Quote, Profile, Research, Stock Buzz) as a sign of ongoing ills in the financial sector.

The dollar rebounded versus the euro on Tuesday to $1.2863 after hitting a two-week high in New York, while Asian shares rallied as risk aversion seemed to be easing.

Japan's Nikkei average .N225 jumped more than 5 percent on Tuesday after Wall Street soared the previous day .T, while physical gold traders were seen taking profits after prices leapt as much as 11 percent in the past two trading sessions.

"There's some selling, most probably from the physical side because gold has gone up so much, but I guess the trend is still pretty good. Physical buyers such as jewelers would like to wait for a while," said a dealer in Hong Kong.

Bullion struck a two-month high of $931 in early October but has since traded in a wide range as it struggled to revisit March's record of $1,030.80.

A firmer dollar reduces gold's appeal as an alternative investment, while weaker oil prices rob gold of some of its appeal as a hedge against inflation.

Gold was likely to trade in a narrow range before an OPEC informal meeting in Cairo later this month, said Kazuhito Saito of Interes Capital Management in Tokyo.

"There will be position squaring in all commodities. New York crude oil will trade between $50 and $55. Gold's range will be narrow this week," said Saito.

Jewelry makers were on the sidelines but there was some buying of platinum by Japanese investors, he added.

Platinum traded at $856.50 an ounce, up $0.50 from New York's notional close. It hit a two-week high of $868 an ounce, driven by recent gains in gold and buying by the Japanese.

Author: Jo Amey