By Jan Harvey
LONDON, Dec 19 (Reuters) - Gold prices swung back
above $1,600 an ounce on Monday, erasing earlier losses, as the
dollar surrendered gains to trade little changed against the
euro in midafternoon trade, taking selling pressure off the
precious metal.
Spot gold was up 0.3 percent at $1,602.79 an ounce at
1345 GMT. Earlier it fell as low as $1,582.84 an ounce as
worries over further euro zone downgrades lifted the dollar.
The metal has seen good physical buying since falling to a
near 12-week low last week, dealers in Europe said. It went on
to post its biggest one-week loss since late September as the
dollar benefited from concerns over the euro zone debt crisis.
"We are just seeing a small pop higher in the euro versus
the dollar," said Saxo Bank senior manager Ole Hansen.
"Liquidity is gone, so it doesn't take much to push (gold)
higher."
He said a move back above the precious metal's 200-day
moving average around $1,620 an ounce could trigger more buying.
"I think gold investors could be lurking in the wings if we
get a good move back above (there)," Hansen said. "The break
last week has kept the market under some pressure but with no
follow-through it could set the stage for some technical short
covering which would trigger additional buying from investors."
The euro recovered to trade almost flat versus the dollar
after earlier easing towards an 11-month low on concerns the
euro zone sovereign debt crisis would hurt global growth.
Gold in recent months has been closely correlated to riskier
assets as a funding squeeze forced investors to dump gold to
cover losses elsewhere.
Confidence in the precious metal remains fragile after a
weak performance in the fourth quarter so far, with spot prices
on track to post their first quarterly loss in more than three
years.
Traders with an eye on the end of the year are likely to be
loath to add to long positions at this stage, whatever their
views of gold prices' longer-term direction, Mitsui & Co
Precious Metals analyst David Jollie said.
"Whatever your view, you have to ask what the chances are of
making money by the end of the year," he said. "That says to a
lot of people that this is not a market to get longer in."
INVESTORS CUT BULLISH BETS
Managed money in gold futures and options cut bullish bets
for a second consecutive week as gold prices fell sharply, the
latest data from the U.S. Commodity Futures Trading Commission
showed.
"The need/desire to hold U.S. dollars trumped gold's
safe-haven attributes as liquidity became the overriding
priority for investors," said Credit Suisse in a note.
Demand for physical metal in the world's biggest gold
consumer, India, was subdued on Monday as buyers postponed
purchases in anticipation of bigger fall in prices, dealers
said.
Lower prices were tempting some European buyers, however,
traders said. "We have seen since last Wednesday very good
demand for physical," said Afshin Nabavi, head of trading at MKS
Finance. "It was still continuing this morning."
Analysts say gold may be vulnerable to further losses
towards the end of the year and in early 2012, with no end yet
in sight to the euro zone debt crisis and some improvement
expected in the U.S. economy, which should support the dollar.
However, gold's underlying appeal as a hedge against
currency market instability, an official sector reserve asset
and a store of wealth in emerging economies is expected to
prevent too steep a correction, they add.
Even after last week's correction, spot gold prices remain
up 12.9 percent from the beginning of the year.
U.S. gold futures for February delivery were up $7.00
an ounce at $1,605.00. Among other precious metals, silver
was down 2.4 percent at $28.99 an ounce, having fallen
nearly 8 percent last week, tracking gold.
Spot platinum was down 0.2 percent at $1,413.99 an
ounce, while spot palladium was up 0.7 percent at $624.22
an ounce.
(Additional reporting by Rujun Shen; editing by James Jukwey)
