London - Gold prices edged off 3-1/2 month lows on Wednesday as stock markets weakened in Europe, having earlier extended losses after a technical breakout the previous day saw prices slide more than 2 percent.
Gold posted its biggest daily fall since mid-December on Tuesday after strong US data helped send US and German stocks to record highs, with losses accelerating as prices broke out of the narrow range they'd held in for more than a month.
Spot gold initially extended losses on Wednesday to a low of $1,260.74 an ounce, but had recovered to $1,265.33 an ounce at 11:34 SA time, up 0.2 percent.
US gold futures for June delivery were flat at $1,265.50 an ounce.
A decline in European stocks after a strong rally in Asia and the United States, and a rise in holdings of bullion-backed exchange-traded funds, have helped the metal recover from early lows, analysts said.
“(A) technical break out of the triangle kicked off (the fall yesterday), which then accelerated when US data surprised and US stocks hit new records,” Saxo Bank's head of commodity strategy Ole Hansen said.
“Adding to this (was) data which showed China gold imports from Hong Kong falling to a 14-month low.”
“There are not that many bullish themes to latch onto,” he added.
“The election of what seems to be a strong man in Ukraine may help relations with Russia, at least that's the view the market is now taking. All is not lost though. ETP holdings jumped yesterday... Today the $1,262.70 (level) remains the key. Any additional selling should run out of steam ahead of $1,245.”
European stocks were down 0.2 percent, bucking the trend for rising global markets which had been shored up by strong US economic data on Tuesday.
The euro traded near a three-month low as expectations solidified for a multi-pronged attack on monetary policy by the European Central Bank next week.
Comments this week by ECB President Mario Draghi were read as confirming the bank is on course to ease policy significantly.
CHINESE BUYING SOFT
Gold buying in the price-sensitive Asian markets remained soft on Wednesday, traders said, with Chinese demand failing to pick up despite the sharp overnight drop in prices.
“We have had a $30 price drop and still no jump in Chinese premiums. That is not supportive,” Victor Thianpiriya, an analyst at ANZ, said.
Prices for 99.99 percent purity gold on the Shanghai Gold Exchange were about $2-$3 an ounce above global prices, little changed from Tuesday's premiums.
The price differential between Chinese prices and global prices is considered a good measure of demand.
Trade data on Tuesday showed that China's imports of gold from main conduit Hong Kong fell to a 14-month low in April as importing banks were adequately stocked amid softer demand and a weaker yuan.
From a technical perspective, the metal remains vulnerable to further losses, according to analysts who study past price moves to determine the future direction of trade.
“Important support at $1,262.62, the 62 percent retracement of December-March advance... is currently under test,” UBS said in a note.
“A close below this will be an outright bearish picture, suggesting a deeper selloff over the longer term.”
Among other precious metals, silver was up 0.3 percent at $19.11 an ounce, while spot platinum was flat at $1,456.99 an ounce and spot palladium was up 1.5 percent at $842 an ounce.
New South African mining minister Ngoako Ramatlhodi said on Wednesday he understood that talks, mediated by a labour court judge, between platinum mining companies and the striking Amcu union had broken down.
The platinum strike is now in its fifth month. - Reuters