SINGAPORE (Reuters) - Gold fell more than 1 percent in volatile trade on Wednesday as investors across Asia booked profits after propelling the precious metal to its highest in 18 years above $500 an ounce.
Platinum tracked gold's declines and traded well below $1,000 an ounce, after rising to its highest since March 1980 at $1,002 on Tuesday.
Terrorist attacks, rising oil prices, the prospect of more demand in China and reports that Russia, Argentina and South Africa have decided to increase the amount of gold in their reserves have elevated gold's safe-haven appeal this year.
Gold rose above $500 an ounce for the first time since December 1987 on Tuesday, hitting a high of $502.30 in Asia, as funds diversified into precious metals on worries about inflation worries and geopolitics.
But dealers said gold would succumb to a quick retracement on position-squaring and profit-taking in the lead-up to Christmas.
The long positions in New York's COMEX market would also weigh on sentiment, they said.
Spot gold fell to as low as $492.25 an ounce before rebounding to $493.60/494.10 in afternoon trade, still down sharply from $499.70/500.50 an ounce last quoted in New York.
"It's a failure to hold above $500 but this is a normal retracement after such a run-up. It's a healthy technical correction and I like it," said one dealer in Singapore, a centre for bullion trading in Southeast Asia.
"We may go down to $491 and if it can't hold, we are going down to $485. If we stay above $491, we will go back up again to $500 but the timing is hard to say," he said.
Persistent selling in Japan weighed on the spot market, said dealers. The benchmark October contract on the Tokyo Commodity Exchange fell 28 yen per gram to 1,911 yen -- below a 15-year high of 1,962 yen hit on Monday.
The latest weekly Commitments of Traders report issued by the Commodity Futures Trading Commission on Monday showed that speculative net long position in New York's COMEX gold were close to record high levels.
Physical trading was quiet in Asia, with jewellery manufacturers staying on the sidelines despite the price correction. Dealers in Hong Kong still noted sales of gold bars and scraps from mainland China as investors cashed in.
"I feel the coming days should be choppy. The market should be in a consolidation mode for the time being," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong, a centre for bullion trading in East Asia.
In other precious metals, platinum fell sharply to $977/981 an ounce from $992/995 late in New York.
Sister metal palladium also fell to $259/263 an ounce from $263/267.
Silver fell to $8.19/8.22 an ounce from $8.30/8.32 late in New York. It had risen to $8.36 earlier this week, its highest since April 2004 on fund buying.
"A lot of people are already long in silver. There are no new guys left to buy it but I think silver should find support at $8.10," said the Singapore dealer.
