Gold prices held above $1,760 an ounce on Wednesday as recent policy easing measures from central banks including the Federal Reserve sharpened investment appetite, but a stronger dollar and a weaker tone to stocks and commodities kept a lid on gains.
The Fed, the European Central Bank and the Bank of Japan have all unveiled bond-buying programmes this month to further loosen monetary policy.
Gold prices hit 6-1/2 month highs on expectations that the moves would benefit bullion by keeping long-term interest rates, and hence the opportunity cost of holding bullion low, while increasing liquidity and stoking inflation fears.
Spot gold was up 0.2 percent at $1,763.85 an ounce at 11:56 SA time, while US gold futures for December delivery were up 40 cents an ounce at $1,766.80. Gold's sensitivity to the dollar and other commodities held it in check, however.
“After rapidly rising between mid-August and mid-September, gold has since been consolidating around $1,765 an ounce,” BNP Paribas analyst Anne-Laure Tremblay said. “Short term, we could see a limited correction before the price resumes its ascent.
“The US dollar has been strengthening of late, particularly against the euro. This is likely weighing on the gold price. Beyond this, the gold market is just taking a breather, as it is not far off the $1,800 an ounce level, which constitutes a strong resistance.”
Worries over the euro zone debt crisis, as Greece faced its biggest anti-austerity strike for months and Spain's central bank suggested the country's recession was deepening, knocked European shares and crude oil futures sharply lower.
Spanish yields edged closer to 6 percent on Wednesday after developments in Spain dampened expectations that Madrid will be able to ask for a bailout soon.
The euro also hit a two-week low versus the dollar as popular opposition within the euro zone to budget austerity measures unnerved investors already worried about a weak global growth outlook.
VTB Capital said in a note that gold was likely to continue tracking the euro in the short term.
“Lack of follow-through buying at these prices is a concern, with investors showing only reluctant interest despite an upbeat long term outlook for gold,” it said.
“In the absence of any significant fundamental developments, most market participants are waiting for a deeper correction after recent gains before committing to new longs.”
GOLD INVESTMENT FIRMS
Holdings of gold-backed exchange-traded funds rose by nearly 300,000 ounces on Tuesday, according to Reuters data , to hit a record 74.063 million ounces, with most fresh flows moving into New York's SPDR Gold Trust.
But appetite for bullion from number one buyer India remained fragile. Gold importers there stayed away from fresh deals for a second day as prices recovered from their lowest in more than two weeks due to a weaker rupee.
“Sales are nowhere equal to what they were last year,” Harshad Ajmera, proprietor of JJ Gold House, said.
Among other precious metals, silver was up 0.5 percent at $33.86 an ounce. Spot platinum was up 0.3 percent at $1,624.49 an ounce, while spot palladium was flat at $631.31 an ounce.
Platinum prices have retreated from the 6-1/2 month highs they hit earlier this month after violence linked to labour unrest at a mine operated by number three producer Lonmin in South Africa led to 45 deaths.
Faced with a dearth of demand from key consumers in the European auto sector - platinum is a key component in catalytic converters, chiefly in diesel engines - prices have struggled to maintain gains even in the face of continued unrest.
Julius Malema, a renegade of the ruling African National Congress and opponent of President Jacob Zuma, said he would visit Impala's Rustenburg mine, which was hit by strike action earlier this year, on Thursday to push for a wage strike.
“Interest in platinum is still elevated and the price floor is now at least $150 above this year's lows, but investors are cautious about pushing the market higher from here,” UBS said in a note on Wednesday.
“A slew of further negative headlines, including an escalation at Impala and/or Anglo Platinum would attract further spec buying. But with spec positioning already stretched, and with prices no longer at the extreme or attractive end as $1,400 was regarded, buyers may not be in the same rush as before.” - Reuters