Spot gold rose slightly yesterday after falling 2% in the previous session, as a key technical level offered support to prices that remained under pressure from a firm dollar.
The dollar index held steady near its 11-month high, Asian shares drifted lower and the euro weakened after the US central bank failed to take any new steps to stimulate growth.
The eurozone debt crisis remains in the spotlight. Investors, unnerved by the possibility of a mass credit downgrade in the eurozone as soon as this week, will closely watch Italy’s five-year debt sales later in the day after bond yields rose on Tuesday.
“If we see weak demand for bond sales in Italy and Spain, it will again fuel concerns about the debt problem in Europe and cause a further sell-off in markets,” said Ong Yi Ling, an analyst at Phillip Futures.
The 200-day moving average, at just below $1 620, provided strong support for gold prices, analysts said.
“We are seeing some technical rebound after prices fell about $100 in the past couple of days,” said a Hong Kong-based dealer, “I wouldn’t be surprised to see a rebound of $20 or $30.”
Although gold prices have dropped more than 4% so far this week, the sharp decline has failed to trigger much buying interest on the physical market, as the strong dollar depresses the buying power of local currencies in Asia, he added.
The most-active US gold futures contract tumbled as much as 2,3% to $1 625,3 an ounce earlier in the day, before recovering to $1 640,90 by 0647am.
Spot gold rose 0,4% to $1 637,80, after sliding 2% in the previous session and hitting $1 622,14, its lowest since October 21.
The US gold contract settled at $1 663,10 on Tuesday, more than $30 higher than the closing price of spot gold.