Gold rose back above $1,650 an ounce on Tuesday, helped by a recovery in stock markets and a rise in physical demand after a three-session price slide, but concerns over the scope of US monetary easing kept a lid on gains.
Spot gold was up 0.4 percent at $1,652.99 an ounce at 12:34 SA time, while US gold futures for December delivery were up $7.30 an ounce at $1,653.60. Trading held in a narrow range, however, on uncertainty over US monetary policy.
Prices slid to their lowest since mid-August on Friday after minutes from the Federal Reserve's November meeting suggested policymakers were becoming increasingly concerned over the impact of loose monetary policy on financial markets.
Successive rounds of US quantitative easing, or money-printing to buy bonds, have been a primary driver of higher gold prices in recent years, keeping up pressure on long-term interest rates and fuelling fears over inflation.
“It looks like we are in a period, whether sustainable or not, of some stability, and this is resulting in the moribund performance of the gold price,” Deutsche Bank analyst Daniel Brebner said. “That potentially could continue over the next quarter or two.”
“But we're not out of the woods yet, and there is still much that the world economy needs in terms of support from monetary policy,” he added.
“The whole debt situation remains a major challenge, and accommodative monetary policy is very much seen as a way to minimise the negative repercussions of that. So I don't believe the gold story is over, but certainly, the market is likely to continue to pause.”
European shares recovered early losses to edge up 0.1 percent in early trade. German government bonds steadied, while the euro was little changed versus the dollar. The dollar index edged lower.
Markets are awaiting the outcome of a European Central Bank policy meeting on Thursday, as well as Chinese trade data on the same day for pointers as to the health of the global economy.
From a chart perspective, Barclays Capital flags up support for gold at $1,640 an ounce and resistance at $1,665, close to this year's high and the 50 percent Fibonacci retracement of gold's move from its 2012 lows in May to its October highs.
“Friday' probe down to $1,627 keeps the downside risk as key concern,” ScotiaMocatta said in a note. “A close below $1,630, (the 61.8 percent Fibonacci retracement of the six month range) would trigger fresh selling of gold looking for $1,591 (the 76.4 percent Fibonacci).”
Gold buying in Asia in particular rose sharply after prices dropped to a 4-1/2 month low last week, with the trading volume on the Shanghai Gold Exchange's 99.99 gold physical contract hitting record levels on Monday.
Shanghai's 99.99 gold trading at 331.58 yuan a gram, or $1,658 an ounce - a $10 premium over spot prices, compared with single-digit premium most of last year.
“Physical demand is very strong,” said a Beijing-based trader. “It's a combination of the attraction of lower prices as well as pre-holiday demand.”
The Hong Kong Census and Statistics Department said on Tuesday that Hong Kong exported 90.763 tonnes of gold to mainland China in November, up 91 percent on the month.
Premiums on gold shipments to India jumped to their highest in two months on Tuesday as traders rushed in to place orders for the metal ahead of an expected rise in import duty, even as gold refiners overseas hurried to keep pace.
Among equities, shares in African Barrick Gold fell 20 percent after Barrick Gold Corp said it was no longer in talks to sell a stake in the London-listed gold producer to a Chinese buyer. Barrick owns a 74 percent share in the company.
Among other precious metals, silver was up 0.4 percent at $30.24 an ounce, while spot platinum was up 0.7 percent at $1,563 an ounce and spot palladium was up 0.7 percent at $672.50 an ounce. - Reuters