Gold prices edged back towards $1,560 an ounce in Europe on Tuesday after a positive reading of German growth lifted the euro versus the dollar, and as physical buyers stepped in to take advantage of the metal's fall to 4-1/2 month lows.
Gold remains vulnerable to more losses, however, as worries over the euro zone's future simmer in the background, keeping the single currency under pressure.
Spot gold was up 0.1 percent at $1,557.80 an ounce at 11:24 SA time, while US gold futures for June delivery were down $3.50 an ounce at $1,557.50.
Gold earlier hit its lowest since Dec. 30 at $1,547.99 an ounce and is down more than 6 percent in May so far, on track for its worst monthly performance since December's washout, as talk that Greece could exit the euro zone spooked investors.
While concerns over euro zone debt prompted investors to buy gold as a haven from risk in 2011, it has performed more as a commodity this year, wilting under pressure from the stronger dollar.
“(Gold's) safe haven status has been tarnished,” Richcomm Global Services senior analyst Pradeep Unni said. “It will wobble on the euro's weakness, but in a very short term, bargain hunting and pent-up demand will emerge taking it higher.”
The euro recovered from four-month lows after German economic growth beat forecasts, though gains could be fleeting as a political stalemate in Greece stoked fears it may renege on bailout pledges and exit the currency bloc.
Analysts said any bounce in the euro could run out of steam above $1.2880-$1.2900, with peripheral bond yields still at elevated levels, highlighting the risk of contagion from the Greek deadlock spreading to other euro zone countries.
The surprisingly strong German economic data lifted European equities from 2012 lows.
“When German GDP came in at 0.5 percent, a lot higher than expected, the subsequent rally in the euro gave rise to a quick 10-dollar short covering rally in gold,” Marex Spectron said in a note. “This may deter the sellers from attempting another push lower for the time being and the fact that 1550 has basically held will probably spur a little bit of buying interest.”
“However, if the euro should turn round again then gold will be pushed lower with it, so as usual watch the currency carefully,” it added. “I think the market has probably done enough on the downside for the time being if the euro can hold.”
ASIAN BUYERS STEP IN
Physical demand in major Asian gold consumers also worked in gold's favour, traders reported, with buyers stepping in to take advantage of its slide below $1,550 an ounce.
“Jewellers have been buying a lot. At the moment supply is a bit tight for immediate delivery,” said a physical dealer in Singapore. “Refiners can't deliver immediate gold because there's a sudden surge in demand. We're seeing demand from India, Thailand and Indonesia.”
Nonetheless, dealers in major consumer India say more losses are expected in the precious metal as the rupee strengthens, making dollar-priced bullion more expensive for local buyers.
“Gold could be volatile due to rupee moves and could fall lower if the currency appreciates,” said Gnanasekar Thiagarajan, director with Commtrendz Research.
Holdings of gold-backed exchange-traded funds monitored by Reuters, which issue securities backed by physical metal, fell by nearly 100,000 ounces on Monday, data from the funds showed.
Among other precious metals, silver was up 0.5 percent at $28.26 an ounce, having fallen to its lowest since Jan. 3 earlier at $27.93.
Platinum group metals outperformed as the annual Platinum Group meeting of miners, refiners, traders, recyclers and consumers in London continued into a second day.
Spot platinum was up 1 percent at $1,446.69 an ounce, while palladium was up 2.1 percent at $599.20 an ounce.
A report by Johnson Matthey on Monday showed both the platinum and palladium markets in surplus last year. However, the palladium market is expected to swing back into deficit next year as selling of physical metal by investors and sales from Russian state stocks dry up. - Reuters