Spot gold fell in quiet Asian trade on Tuesday as a firmer dollar kept investors at bay, but traders expected fresh physical buying to prevent prices from falling below the crucial $400-an-ounce level.
Gold has fallen by nearly six percent since touching a 15-year peak of $430.50 on January 6 as the dollar staged a steady recovery against other main currencies.
Soaring gold prices had forced gold jewellery buyers in main consuming countries like India to cut purchases.
"If (gold) can really drop to $400, I think our physical demand will pick up," said Maggie Loh, dealer at United Overseas Bank in Singapore.
"Even now (demand) will be slightly picking up in Singapore and Malaysia.
Today is quiet because we are having our holiday soon," she said.
The markets in Singapore and Hong Kong will close from on Wednesday until the end of the week for the Lunar New Year holidays. Spot gold was traded at $405.50/406.25 an ounce against $406.70/407.20 last quoted in London. The Comex market reopens later on Tuesday after on Monday's Martin Luther King Jr. holiday.
The benchmark December 2004 gold contract on the Tokyo Commodity Exchange rose four yen per gram to 1,401 yen per gram.
"I think there's good support at the low of $400. Prices may fall to $402 and $400, but I think a lot of people want to keep it above $400," said one dealer in Sydney.
"If it does slip below $400, it's a bit of a sign that it will perhaps go lower. But people I am speaking to are still bullish in gold," he said.
Dealers pegged resistance levels at $411, $418 and $431 an ounce. Support below $400 was pegged at $390 an ounce. In the currency market, the dollar got support from euro zone leaders who have voiced concern about currency volatility.
European finance ministers and officials from the European Central Bank issued a joint statement ahead of a Group of Seven meeting next month, saying the euro zone was sticking to its position that its currency should trade in line with economic fundamentals in the medium and long term.
The euro stood at $1.2375 off one-month lows around $1.2335 hit on Monday and down more than four percent from last week's life highs near $1.29.
The dollar bought 107.48 yen, little changed on the day. Silver stood at $6.29/6.31 an ounce compared with $6.33/6.35 last quoted in London.
Palladium was quoted at $212.00/217.00 and platinum at $854.00/859.00.
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