Gold makes slight gain

The metal hit its highest since February 28 at  S$1 598,20 on Tuesday, but the bounce ran out of steam due to pressure from an improving economic outlook in the US and continued redemptions in gold-backed exchange-traded funds, analysts said.
Spot gold was up 0,3 percent to US$1 595,84 an ounce by mid-morning.

The metal broke above the US$1 5600-US$1,585 range in which it had been confined since the start of March. The rally was fuelled by automatic buy stop orders triggered at present levels between US$1,586 and US$1,587, traders said.
US gold futures for April delivery rose 0,2 percent to US$1 594,90.

“Gold gains when data shows that the eurozone economy is still suffering,” Commerzbank commodity analyst Daniel Briesemann said.
“But yesterday’s attempt to regain the US$1 600 level is still capped by the fact that a number of institutional investors appear still happy to withdraw their money from the market.”

The dollar was firmer against the euro after data showed output at eurozone factories fell more than expected in January, and production in France and Germany slipped, in the latest sign the bloc is struggling to emerge from recession.
On Tuesday comments from Germany’s Bundesbank, that the eurozone crisis was far from over and that inflationary risks were easing, were seen as the initial trigger for the rally.

Traders covered their short positions as they interpreted the remarks as an indicator of continued monetary easing, which favours gold as low interest rates encourage investors to put money into the non-interest-bearing assets. Analysts said although investors remained lukewarm towards gold, a push above US$1 600 could force traders to close bearish positions to limit losses.
“The spec shorts are currently around 60 percent higher than they were last year in May, when gold found a base at US$1 525,26, which suggests we may have further to squeeze,” MKS Capital trader Alex Thorndike said.

European shares fell yesterday after a bond auction in Italy attracted less than expected demand and resulted in higher borrowing costs compared with previous auctions.
As a gauge of investor interest, holdings of SPDR Gold Trust, the world’s biggest gold-backed ETF, fell for a fourth straight session on March 12, to 1 236,307 tonnes, its lowest since October 2011.

The outflow this year of 114,51 tonnes has more than wiped out last year’s inflow of 96,25 tonnes.
With economic data sparse during the week, the next major event is US consumer inflation data on Friday, which analysts said was likely to provide some direction. Investors will be also watching a policy meeting of the Federal Reserve on March 19-20 to gauge the central bank’s attitude towards monetary stimulus.

An exit from the stimulus policy would deal a heavy blow to gold, which has thrived on demand from investors who buy gold to hedge against the inflationary risks of loose monetary policies.
Among other precious metals, spot silver was up 0,1 percent to US$29,14 an ounce, having hit a two-week high of US$29,35 in the previous session.
Platinum fell 0,4 percent to US$1 589,24 and palladium fell 0,5 percent to US$766,72, off last Friday’s peak at US$784,50, its highest since September 2011. — Reuters.