LONDON (Reuters) - Gold was on course for its biggest weekly gain in four months, after safe-haven buying prompted by crisis in Cyprus took the price to a 3-1/2 week high in the previous session.
Cyprus was still scrambling to avoid a meltdown of its banking system and a possible exit from the euro, with the European Union giving the country until Monday to raise 5.8 billion euros to secure a 10 billion euro international lifeline.
Bullion hit its highest since February 26 on Thursday at $1,616.36 an ounce, with the situation in Cyprus helping to pluck the metal out of a downtrend caused as normalising economic conditions took prices to their lowest since mid-July.
"Cyprus will likely remain the focus for another week until the start of April, when we will see a shift to other economic data," Standard Bank analyst Walter de Wet said.
Spot gold was down 0.2 percent on the day at $1,611.36 an ounce by 1124 GMT, still leaving prices on course for a weekly gain of about 1.3 percent in its third weekly rise.
In euro terms, the metal has gained 2.6 percent so far this week, its strongest performance since early November.
U.S. gold futures for April delivery traded at $1,611.60, down 0.1 percent.
Even though the market's complexion had changed somewhat, prospects for a deal were capping progress with analysts citing some concern on the slow pace of gains in gold.
"In general one would have expected prices to be higher but also there's a lot of interest around $1,600-$1,625 in the option market and from the speculative side, so to some extent you are seeing some technicality to the market too," de Wet said.
Traders and analysts were eyeing key resistance at $1,620 an ounce, a price unseen since the end of February. A break above that level could rekindle enthusiasm in trading.
"Gold will have to breach and close above $1,620 to confirm its recovery," MKS Capital said in a note.
But there is considerable pressure from the continuous outflow from gold-backed exchange-traded funds. Holdings of these funds are seen as a barometer of investment interest in gold.
Holdings of SPDR Gold Trust, the world's largest gold ETF, fell 0.902 tonnes from the previous session to 1,221.26 tonnes on March 21, the lowest since July 2011. The fund is headed for a twelfth week of outflows.
Asia's physical gold market remained quiet as buyers moved to the sidelines after prices broke above $1,600 earlier this week.
In wider markets, the euro was flat against the dollar and European shares were mixed after a German Ifo business climate index fell in March.
In other precious metals, spot silver fell 0.2 percent to $29.06, having reached a one-week high of $29.32 in the previous session. Platinum rose 0.1 percent to $1,578.49, while palladium was down 0.3 percent to $751.
(Editing by Veronica Brown and James Jukwey)
First Published On : Mar 23, 2013 02:15 IST