Tokyo gold futures lost nearly 1 percent on Monday, with the benchmark contract slipping below the key 2,300 yen level, as long liquidation gathered pace after a sell-off in New York and a drop in oil prices to the year's low.
Trade was thin as steady bullion prices and a weaker yen made traders cautious about selling TOCOM gold aggressively. Benchmark August 2007 gold on the Tokyo Commodity Exchange settled down 22 yen or 0.97 percent at 2,285 yen per gram after trading between 2,271 and 2,286.
"Traders were wary of taking fresh positions as TOCOM looks directionless after the benchmark contract failed to sustain 2,300 yen," a Tokyo broker said, adding that buying interest would not strengthen unless the key contract broke through the October high at 2,316 yen.
After confirming a floor at 2,143 yen on October 5, August gold has had difficulty regaining 2,300 yen, as a retreat in oil prices weakened gold's appeal as a hedge against inflation and depressed investor interest in the precious metal.
Oil prices steadied on Monday after hitting a year-low on Friday, as Saudi Arabia told Japanese refiners of supply cuts, tempering market scepticism over Opec's resolve for curbing output that had left prices deepening a three-month rout.
US crude for new front month December delivery was 12 cents down at $59.21 a barrel, after a low of $58.26 earlier in the day, and losses of $1.17 on Friday.
Spot gold was at $592.00/593.00 an ounce, up from $591.90/592.90 in late New York trade on Friday.
"I don't expect prices to fall below $590 as physical buying emerged on price dips," the broker said. Trade in TOCOM gold also turned cautious ahead of the Federal Reserve's upcoming policy meeting, which traders expect will provide clues on the outlook for United States interest rates.
The Fed is widely expected to hold rates at 5.25 percent for the third straight meeting on Tuesday and Wednesday and repeat warnings on inflation, although many traders think the Fed may be done raising rates. The dollar edged up to 118.80 yen from 118.70 yen in late US trade on Friday, and up from last week's low of 118.05 yen. It hit a 10-month high of 119.88 yen this month.
In the platinum market, TOCOM's benchmark August 2007 contract closed down 33 yen per gram at 4,030, tracking losses in New York. Spot platinum was quoted at $1,074/1,079 an ounce down from $1,076/1,081 in New York.