Gold steadied on Tuesday, defying a modest show of strength in the dollar, following data that showed central banks added to their bullion holdings in July and August, led by South Korea and Paraguay.
Spot gold rose 0.1 percent to $1,767.89 an ounce by 12:15 SA time. The price has risen by 4.6 percent so far in September and is on course for a fourth consecutive monthly gain.
Gold priced in euros, which rose by half a percent on the day to 1,370.39 euros an ounce, was less than three euros from last year's record high.
The gold price has risen by 8 percent in the last four weeks on anticipation that the US Federal Reserve will keep credit flowing through the economy and interest rates low by buying government bonds.
The Fed's pledge to buy $40 billion in mortgage-backed securities each month as long as job creation remains sluggish should protect gold from more severe sell-offs, analysts say.
“We've already seen a reasonably good run-up as the central banks have implemented various programmes across the world, so it looks to me like we've got a short period of consolidation,” Daniel Smith, an analyst at Standard Chartered said.
“Ultimately, I think it's quite likely we will get above $1,800 before the year-end, so maybe a month of sideways trading possibly and then generally trending higher in the next six months to a year,” he said.
The decline in the US dollar against a basket of currencies to four-month lows is a direct result of the Fed's bond-buying plans and continues to prompt foreign central banks to allocate more of their holdings in gold rather than the US currency.
CENTRAL BANKS BUY
Data from the International Monetary Fund on Tuesday showed South Korea raised its holdings of gold by nearly 16 tonnes in July, along with Paraguay, which raised its reserves in July from a few thousand ounces to more than 8 tonnes, continuing the trend among central banks to hold more bullion.
According to the IMF's international finance statistics report, South Korea added 15.988 tonnes of gold to bring its holdings to 70.44 in July, meaning it has doubled its bullion reserves in the space of a year after being one of the largest purchasers of gold in 2011.
Paraguay raised its holdings by 7.527 tonnes to 8.194 tonnes two months ago, while Venezuela cut its holdings by 3.733 tonnes to 362.053 tonnes in that month.
So far this year, central banks have added a net 262.1 tonnes to their reserves, compared with 203.39 tonnes in the first eight months of 2011.
Turkey has added the most to its holdings, having raised its reserves by 100.2 tonnes in the first eight months of the year, followed by Russia, which has added 53.75 tonnes.
Private investors have also added to their holdings of gold through exchange-traded funds backed by physical metal, which now hold a record 74.06 million ounces.
“We still prefer to be buying gold on dips and believe the break higher will eventually come. But the futures market needs to lose some speculative length and the physical market needs to adjust to a higher price-range first,” Walter de Wet, an analyst at Standard Bank, said in a research note.
He said he expected gold to reach $1,900 in the latter half of the fourth quarter.
In other precious metals, palladium rose 0.1 percent on the day to $644.00 an ounce.
On Monday, the price fell by more than 4 percent, its largest one-day decline since early March, in what traders and analysts said was a bout of technical selling that gathered pace after the price broke through the 200-day moving average.
Platinum edged up by 0.1 percent to $1,613.40 an ounce, while silver rose 0.3 percent to $34.03. - Reuters