Gold prices hit a two-week low on Monday as the metal's failure to break above $1,800 an ounce prompted some investors to cash in gains while they awaited clarity on when and whether debt-laden Spain would request a bailout, which could boost the euro.
The precious metal was hurt by heavy liquidation in Asian trade, and by upbeat US consumer confidence data on Friday that tempered expectations over the extent of monetary easing measures from the Federal Reserve.
The metal's failure to maintain a rally sparked by the latest round of Fed easing measures has sparked some profit-taking among short-term investors, analysts said.
Spot gold was down 0.4 percent at $1,746.60 an ounce at 12:14 SA time, having earlier fallen to as low as $1,741.24, while US gold futures for December delivery were down $11.60 an ounce at $1,748.10.
The dollar offered little direction, holding flat versus the euro on uncertainty over when Spain will ask for the bailout it needs to trigger European Central Bank bond-buying measures, known as Outright Monetary Transactions (OMT).
“Investors are getting a bit nervous following the recent rejection at $1,800,” Saxo Bank vice president Ole Hansen said. “Many new positions in both exchange-traded funds and futures have been established in recent weeks, especially short term leveraged investors who are not married to their positions in the same sense as long term ETF investors.”
“We need to hold onto the $1,737 low in order to avoid a deeper correction at this time,” he said. “Either OMT in Europe or a weaker dollar seem to be what we are lacking at the moment, so we could see investors... take some chips off the table while they wait for a better level to re-enter.”
Bullion fell 0.8 percent on Friday, its biggest one-day drop in over 10 weeks, after US data beat expectations, calling the scope of the Fed's monetary stimulus measures into question.
The latest programme has been explicitly tied to economic needs, and may be curtailed sooner than expected if data is positive enough.
Prices rose 12.3 percent from mid-August, when speculation began in earnest on the prospect of a third round of Fed money printing to buy bonds, to its high for the year at $1,795.69 in early October, but have failed repeatedly to beat that level.
DATA DAMPENS EASING EXPECTATIONS
US consumer sentiment unexpectedly hit a five-year high a report showed on Friday, while weekly US jobless claims the previous day showed a surprise drop.
On Monday data from China showed inflation was subdued in September while exports had rebounded at nearly twice the rate expected, also dampening expectations for easing measures in the world's second largest economy.
“The possibility of China increasing stimulus to its economy seems to be receding and this, coupled with positive figures from the United States last week, seems to have taken the impetus out of the gold market for the time being,” Marex Spectron said in a note.
Hedge funds and other big speculators boosted their net longs in gold to the highest level in 14 months, the Commodity Futures Trading Commission said on Friday.
“For the eighth consecutive week, net speculative length increased, although momentum continues to slow,” Standard Bank said in a report. “It appears as though investors continue to question the ability of QE3 to support prices and/or the longevity of Fed's open-ended commitment to easing.”
Holdings of gold-backed ETFs, which issue securities backed by physical stocks of precious metal, increased their bullion holdings by some 282,000 ounces last week, an eleventh week of inflows.
Gold demand in major consumer India picked up a touch as prices fell, as the peak gold-buying festival season, which will peak with Diwali and Dhanteras next month, got under way.
Among other precious metals, silver tracked gold lower, down 0.6 percent at $33.22 an ounce.
Mexican miner Fresnillo, the world's largest primary silver producer, posted a 2.6 percent rise in production in the third quarter compared to the same period in 2011, and said it was on track to meet its 2012 targets of 41 million ounces.
Spot platinum was down 0.3 percent at $1,637.75 an ounce, while spot palladium was up 0.9 percent at $634.60 an ounce. - Reuters