LONDON, Oct 31: Gold prices sank about 2 per cent on Friday and headed for its biggest monthly drop in more than 30 years, as a strong dollar and recession fears triggered a sell-off, traders and analysts said.

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

Platinum fell more than 5 per cent as slowing economies around the globe and the widespread 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 $725.80 an ounce by 1030 GMT, having trimmed some losses after hitting $720.70 an ounce, compared to $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.

Gold tends to move in the opposite direction of the dollar as a strong US currency makes bullion more expensive for local currency holders.

Recession fears added to the bearish sentiment.

In times of recession, the most likely scenario for gold is it goes down a lot, especially if it is trading at historically high levels, said Jesper Dannesboe, senior commodity strategist at Societe Generale.

Because the fears of inflation will be replaced by fears of disinflation and that is a killer for gold ... I think gold is going below $600 in this cycle.

The metal has lost as much as 21 per cent of its value this month alone, and is down 12 per cent this year, well below the record high of $1,030.80 struck in March.

Investors are reluctant to buy too much, in case anything happens. We’ve seen a little bit of physical selling around $770, said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong, referring to this week’s high.

Platinum was trading at $789.50 ounce, down $27.50 from New York’s notional close. It has lost more than 60 per cent of its value since hitting a lifetime high of $2,290 in March, mainly due to worries about falling demand for auto catalysts.

New York gold futures fell $10.8 an ounce to $727.6. Palladium was at $192.00/202.00 from $197.00 while spot silver was at $9.35/9.45 compared to Thursday’s $9.66 late in New York.—Reuters