Gold holds ground at $1,710; dollar strength weighs

Singapore: Gold prices hovered largely unchanged around $1,710 an ounce on Monday after suffering their biggest weekly loss in more than two months, supported by resilient demand for bullion while the strong US dollar put off some investors.

Spot gold lost nearly 4 percent last week, after US Federal Reserve Chairman Ben Bernanke disappointed the market by omitting any reference to further monetary easing in a congressional testimony.

Prices have since rebounded and found solid support at the $1,700 level, as investors remain confident in gold’s appeal as real interest rates remain low and inflation remains a longer-term concern.

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“There isn’t much room on the downside for gold, because the sharp fall last week was an over-reaction to an unfulfilled expectation,” said Hou Xinqiang, an analyst at Jinrui Futures in the southern Chinese city of Shenzhen. But Hou said gold’s short-term technicals might have weakened after several recent attempts to breach the key resistance at $1,800 failed. “We are likely to see gold seesaw in the $1,700 and $1,800 range in the short term, as investors wait for a new stimulant,” Hou added.

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Spot gold was little changed at $1,712.79 an ounce by 0331 GMT. US gold edged up 0.3 percent to $1,714.20. Technical analysis suggested gold could rebound to $1,728 an ounce during the day, said Reuters market analyst Wang Tao.

The strength in the US dollar weighed on the sentiment of dollar-priced commodities, after the second injection of three-year cheap funds by the European Central Bank last week and a surprise policy easing by the Bank of Japan a few weeks ago pressured the euro and yen.

Economists believe that the ECB will keep interest rates at 1.0 percent until deep into 2013 on concerns over high oil prices and the impact of the huge cash boost.

Current prices were still attractive to buyers of physical gold in Asia, although the pace of purchasing has slowed from last week’s buying frenzy when prices fell below $1,700.

“The $1,710 level is still attractive for physical buyers,” said a Singapore-based dealer, “Thailand is still buying and Indonesia may come in later as well.”

Money managers, including hedge funds and other large speculators, raised their bullish bets in US gold futures and options to the highest level in five month in the week of February 28, before prices corrected sharply.

Reuters