Spot gold moved higher in Asia on Tuesday as the euro rebounded against the US dollar, making the precious metal a bargain for Europeans, but funds' long positions on Comex weighed on sentiment.
"Whilst no one is expecting a dramatic sell-off, given the global geo-political tensions and the continuing threats of terrorist attacks, the size of the long position will limit upside gains as will any strength in the US dollar," N M Rothschild said in a report.
"The US dollar will be data watching this week.
In particular the unemployment numbers on Friday will be watched with interest as to signs of a recovery in the jobs sector," it said.
Gold rose to $418.05/418.55 an ounce, versus $416.50/417.25 last quoted in New York and London's on Monday afternoon fix of $421.25 an ounce.
The CFTC reported on Friday that funds had increased their long positions by whopping 40,000 contracts. The net speculative long position on Comex rose to 102,511 gold contracts last on Tuesday from 62,479 a week.
This was approaching the overbought extreme of 115,985 from January and the record of 122,847 from September 2003.
But dealers said global security concerns after deadly bombings in Madrid and Iraq, and Israel's assassination of the head of Hamas would continue to support gold's safe-haven status.
In the Tokyo gold futures, the benchmark February 2005 gold contract on the yen-based Tokyo Commodity Exchange (TOCOM) fell three yen per gram to 1,421 yen because of overnight declines in New York.
The yen was steady on Tuesday near its recent three-and-a-half-year high against the dollar, aided by expectations of a solid recovery in the Japanese economy.
The dollar was at 105.57 yen, flat from late US levels. The euro was quoted at $1.2171 from around $1.2155 in late US trade.
Bullion dealers said physical buying was limited because jewellery makers were still hoping for prices to come down again. Gold fell to $387.60 an ounce in March, its lowest level since last November.
"People think prices are too high because a few months ago they could buy gold at around $387 an ounce," said one dealer in Hong Kong, a key gold trading city in East Asia.
"Maybe buyers will come back if prices fall back to $400. Kilobars are at a discount of between 15 to 20 US cents in Hong Kong because of slow demand," he said.
In other precious metals, silver was unchanged at $7.59/7.61.
Palladium fell to $282/287 an ounce from New York's last quoted level of $284/289.
Platinum was quoted at $886/891 an ounce, versus $887/892 in New York.
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