Gold extended gains on Tuesday on the back of bargain hunting from Japanese speculators, but bullion was expected to trade in a tight range amid lingering worries about credit market woes. "Whether market turbulence has dissipated for now or whether we're simply in the eye of the storm remains to be seen.
The only certainty is that everyone has a view and that everyone is happy to share it," said Invested Australia. Invested pegged support at $650 and resistance at $676. Spot gold edged up to $658.00/658.70 an ounce from $657.60/658.20 late in New York on Monday, when it gained more than $2 an ounce on a weaker dollar. It hit an intrude high of $659.70 as a firmer yen against the dollar in the day spurred buying from Japanese players in the spot market.
Most active June 2008 gold futures on the Tokyo Commodity Exchange extended on Monday's 2.5 percent rally and ended 5 yen per gram higher at 2,453 yen. Markets have been battered over the past month by fears of financial instability following trouble with risky US mortgages and a squeeze on credit.
Fears of a global liquidity crisis ignited a broad sell-off in financial markets last week that spilled into commodities and sent gold to a 7-week low of $641.10 on Thursday a sign that safe-haven gold was now behaving much like other assets. Investors sold gold for cash to cover margin calls on losses arising from a meltdown in the US supreme mortgage market.
But dealers also noted growing interest in gold as a portfolio diversifier, reflected by a surge in the amount of bullion used to back gold exchanged-traded funds. Data showed that gold held by streetcar's Gold Shares, the world's largest bullion ETF by far, was at record high of 514.21 tonnes. "I think people still expect to see a strong demand for gold. We've seen reports of consumption growing by about 20 percent in the Middle East for instance," said a dealer in Hong Kong.
Gold demand in the Middle East rose 20 percent to 97.5 tonnes on the year in the second quarter as consumers preferred jewellery to shares, the World Gold Council said on Sunday.
Gold came back into favour with Gulf Arab investors after four of the seven Gulf Arab stock benchmarks dropped more than 35 percent last year which resulted in a capitalisation loss of about $500 billion since February 2006.
Analysts say much capital has left the bourses for other asset classes. The dollar edged up to 115.05 yen, having fallen as low as 114.61 yen in trade. The euro was steady at $1.3470. "I think we'll see a trading range of $645-$665 before the Fed meeting," Ronald Lung, director of Lee Cheong Gold Dealers in Hong Kong, who also expected purchases from jewellers and investors to offer support.
The US Federal Reserve turned near-panicky financial markets around on Friday by cutting 50 basis points off the primary discount rate at which banks borrow from the US central bank.
This now stands at 5.75 percent. More than half the primary dealer banks polled by Reuters predict the Federal Open Market Committee will lower Fed funds, its primary monetary tool, at a September 18 meeting or even before.
Investors also awaited a meeting between Fed Chairman Ben Bernanke, Treasury Secretary Henry Paulson and Senate Banking Committee Chairman Chris Dodd on Tuesday at which they will discuss conditions in financial markets. Platinum edged higher to $1,245/1,250 an ounce from $1,240.50/1,247.50 in New York. Palladium fell to $325/328 from $328/331 an ounce. Silver nudged up to $11.74/11.78 an ounce from $11.73/12.76 an ounce.