Gold sinks on strong dollar, recession woes

By Humeyra Pamuk

LONDON (Reuters) - Gold prices drifted lower on Friday and headed for their biggest monthly drop in more than 20 years as a strong dollar and recession fears triggered a sell-off, traders and analysts said.

Macroeconomic data on Thursday that showed the U.S. economy had shrunk 0.3 percent, the sharpest fall in seven years, escalated recession worries and knocked down all commodities, including metals and oil.

Platinum fell almost 6 percent as slowing economies around the globe and the credit crisis caused the largest auto industry companies to slash full-year profit targets, warn of job losses and push for speedy government handouts.

Gold was at $725.10 an ounce by 4:16 p.m., having trimmed losses after hitting a low of $720.70 an ounce, compared with $735.50 an ounce late on Thursday in New York.

"Gold's moves today are mainly currency driven," said Simon Weeks, director of precious metals at the Bank of Nova Scotia.

"At the month-end, flows are in favour of the dollar."

The dollar was firmer against most major currencies on expectations of large dollar demand for the end of the month. Gold tends to move in the opposite direction to the dollar as a strong U.S. currency makes bullion more expensive for local currency holders.

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