Gold prices swung back into positive territory on Tuesday as the dollar retreated from highs against the euro, with investors' confidence in the metal growing after it held its ground during the previous day's financial market sell-off.
Weakness in the single currency pressured gold earlier in the day, with the euro hurt by soft German economic data and Moody's alteration of its outlook for Europe's biggest economy.
But it pared losses versus the dollar ahead of the US market open after data showed US manufacturing expanded at its slowest pace in 19 months, allowing gold to swing higher.
Spot gold was up 0.2 percent at $1,580.70 an ounce at 15:53 SA time, while US gold futures for August delivery were up $2.90 an ounce at $1,580.30.
“Gold is just moving with the US dollar,” MKS Finance head of trading Afshin Nabavi said. “Yesterday, below the $1,570 level, we saw some light physical related interest come in. Today it has been very quiet.”
The euro/dollar exchange rate has taken the lead role in dictating day-to-day moves in gold, as impetus from monetary policy announcements and the physical markets petered out. A weaker dollar benefits assets priced in the US unit.
Gold priced in euros rose 0.2 percent as the single currency retreated, having outperformed gold this month. It is currently up 3.2 percent in July so far, against a 1.5 percent drop in spot prices.
Analysts were impressed by the metal's resilience after it hit a 10-day low on Monday, which saw it strongly outperform other major commodities like copper and crude oil. Chart support arrested its decline above $1,560.
“Markets sold off really heavily yesterday, and gold held up pretty well against that. It is maybe the one thing that has really stayed solid against some pretty solid headwinds elsewhere,” Macquarie analyst Hayden Atkins said.
“People are just keeping the bid where it is, still waiting on things like quantitative easing.” Talk of more QE in the United States, which would undermine the dollar and keep interest rates at rock bottom, lifted gold earlier this year.
Analysts who study past price patterns to determine the future direction of trade said gold's consolidation is showing signs of ending in correction lower. Commerzbank said in a note that it expects the major $1,532/1,522 support area, which held in September and December, to give way over the summer.
“The metal continues to move deeper and deeper into a consolidation triangle,” ScotiaMocatta said in a note, meanwhile. “Current parameters currently lie at $1,560 and $1,611.”
“We would expect fresh selling now below $1,548 and fresh buying above $1,623 as the market tries to play the breakout, it added. “Big picture, triangles tend to be continuation formations, so bias would be a break lower from the $1,790 to $1,528 March-May drop.”
Little support came from the physical market, with offtake still soft in number one gold consumer India, where demand has been hurt by high prices this year. Volumes remained low on the Shanghai Gold Exchange.
Silver was up 0.2 percent at $27.08 an ounce, while spot platinum was down 0.1 percent at $1,390.59 an ounce and spot palladium was down 0.4 percent at $564.25 an ounce.
The gold/platinum ratio, which measures the number of silver ounces needed to buy an ounce of gold, rose back to seven-month highs on Tuesday as the yellow metal outperformed.
Platinum, demand for which is heavily reliant on the European car market, has suffered from concerns that a growing market surplus would hurt prices this year. - Reuters