Gold recovered from lows on Monday, lifted by gains in the euro versus the dollar after French and German leaders said there had been progress on the region's fiscal integration, but its rise was capped by caution after the metal's hefty losses last month.
Spot gold was little changed at $1,617.84 an ounce at 1441 GMT against $1,616.98 late in New York on Friday, off an earlier low of $1,604.44. US gold futures for February delivery were up $1 an ounce at $1,617.90. While rock-bottom interest rates and worries over debt and growth are supportive of the metal longer term, confidence in gold's ability to revisit last year's record high has been shaken by a 10 percent price drop in December, analysts said. "Gold is finding better support, but it has been very rangebound since the start of the year," said Standard Bank analyst Walter de Wet.
"It's hard to point to any negative factors for gold," said Saxo Bank senior analyst Ole Hansen. "Speculative length can be increased quite a bit as it is relatively low, and the dollar could be positioned for a bit of weakening. Euro short positioning rose to another record last week."
Elsewhere Philipp Hildebrand resigned as Swiss National Bank chief on Monday, in the wake of a scandal over a controversial currency trade made by his wife just weeks before he set a cap on the soaring Swiss franc. Money managers cut their net length in gold futures and options for a third straight week as the price of bullion fell to its lowest in nearly six months, US Commodity Futures Trading Commission figures showed on Friday.
Net speculative length in gold, which reflects bets on higher prices, is now at its lowest in two years, analysts said. This decline in net speculative length is likely to mute the impact of index rebalancing this week, which will see last year's outperforming assets sold and underperformers bought. Gold rose more than 10 percent in 2011.
"If the market was very long right now, index selling would make gold considerably more vulnerable to the downside than we expect it to be," UBS said in a note last week. In the short term, gold's continued recovery from December's five-month low will be reliant on it retaking its 200-day moving average. It fell through this key technical level, currently just above $1,633 an ounce, in mid-December.
On the physical markets, trading volume on benchmark gold contracts on the Shanghai Gold Exchange remained firm on Monday after spiking to a historic high at 12,855 kg last Wednesday. Indian gold traders continued to stock up, capitalising on a 7 percent fall in prices from the beginning of December.
India and China are by far the biggest consumers of physical gold, responsible for almost half of all global gold fabrication demand last year. Among other precious metals, silver was up 0.9 percent at $28.96 an ounce, while platinum was up 0.1 percent at $1,400.74 an ounce and palladium was flat at $612.55 an ounce.
Gold retained its historically unusual premium over platinum into a sixth month in January, after hitting parity with the white metal for the first time in 2-1/2 years in August. The gold/platinum ratio, or the number of platinum ounces needed to buy an ounce of gold, reached its highest in more than 25 years on Monday, at 1.16. "Downside risks to the global growth outlook, at least over the next few months, should mean that platinum group metals prices will under-perform," said Deutsche Bank in a note. "Indeed, we expect platinum to trade at a discount to gold throughout this year."
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