Gold rose back towards $1,670 an ounce on Monday as the euro hit an 11-month high against the dollar and European shares strengthened on the back of a more stable growth outlook in the region and declining prospects of further monetary easing.
The metal traded in the narrow range it has held for the last two weeks, however, as investors remained wary towards gold after it recorded its biggest quarterly drop in more than four years in the last three months of 2012.
Spot gold was up 0.3 percent at $1,667.59 an ounce at 12:59 SA time, while US gold futures for December delivery were up $7.20 an ounce at $1,667.80.
“For a sustained rally, you need concerns starting to kick in that would bring new buyers into the market, for instance, a pick-up in inflation,” Bank of America-Merrill Lynch analyst Michael Widmer said.
“Until then, it's going to be difficult to have a sustained rally, so I think we're going to stay within the same range.”
A rise in the euro to an 11-month high against the dollar, after the single currency posted its biggest one-week rise this year last week, helped gold prices to climb.
A more positive view on stability and receding expectations for further monetary easing in Europe left room for further gains in the euro, analysts said, especially given the contrast with expectations for aggressive monetary easing in Japan.
Those factors also helped European stocks, along with merger and acquisition news as investors awaited another round of corporate earnings reports.
Financial markets are now awaiting a speech later in the day by Federal Reserve Chairman Ben Bernanke. Attention will focus on any further indications of how long the central bank's latest bond buying programme will last.
In the longer term, gold may take support in the months to come from ongoing discussions over the raising of the US debt ceiling, which may benefit gold.
“We view the recent sell-off as a good entry point to re-establish fresh tactical longs in gold before the run up to the debt ceiling debate, which we view as a likely catalyst for higher gold prices,” Goldman Sachs said in a note.
“After (that), we expect gold prices will decline as better US economic data overrides further easing.”
Data from the Commodity Futures Trading Commission on Friday showed hedge funds and money managers cut the size of net longs in gold futures and options to a four-month low last week as bullion prices fell on concerns the Fed might withdraw stimulus.
“The fact that speculative financial investors are continuing to withdraw from the gold market is doubtless partly to blame for the gold price's failure to make any substantial recovery,” Commerzbank said in a note.
Technical analysts at Barclays Capital flagged up support for the metal at $1,640 an ounce and resistance at $1,680, its highs and lows of the last fortnight.
“Gold needs to sustain the close above the 1,665 area to signal a move toward the 1695 area,” it said in a note. “Trend indicators, however, warn of further near-term chop over 1,625.”
Among other precious metals, silver was up 0.9 percent at $30.71 an ounce.
Platinum and palladium extended gains from the last session, tracking higher risk appetite in the market. Spot platinum rose 0.7 percent to $1,641.50, on course for a fifth day of gains, matching a similar run in November.
Platinum was close to reach parity with gold as its discount stood at the narrowest in nine months, after platinum's three-week winning streak.
Spot palladium rose 0.4 percent to $699.50, snapping a four-day rise, and is vulnerable to further decline after build-up of massive net long positions.
Net longs in US palladium futures and options dropped from a record high of 18,379 lots to a one-month low of 15,233 lots in the week ended January 8, still more than double the volume in late October. - Reuters