Gold firmed a touch on Monday in US holiday-thinned trade, with firmer stock markets and a recovery in the euro from early lows taking some pressure off the metal, while traders digested last week's eurozone downgrades from Standard & Poor's. The single currency edged above the near 17-month low it hit against the dollar in early trade, while European stock markets swung into positive territory. Oil prices also tracked higher.
Spot gold was up 0.1 percent at $1,641.59 an ounce at 1450 GMT, while US gold futures for February delivery were up $11.20 an ounce at $1,642.00. Prices are still up 5 percent this month, despite a fall of 0.6 percent on Friday as the euro tumbled after S&P downgraded many euro zone nations.
The market has not really seen much interest from the investment sector," said Afshin Nabavi, head of trading at MKS Finance in Geneva. "It feels as though market may be rangebound between $1,630 and $1,660 an ounce. We're looking for a break above $1,700 to bring about more investor interest."
Stocks and the euro recovered after falling in early trade after rating agency Standard & Poor's downgraded nine of the euro zone's 17 countries on Friday, with France and Austria losing their top-notch status. Mass euro zone ratings downgrades are unlikely to shake up investors too much, but with Greek debt talks at an impasse, pressure has been loaded on the bloc to build up its defences. Gold's relationship to bad news on the euro zone debt crisis has been choppy in the past year, with the metal sometimes benefiting from fears over currency debasement and sometimes falling victim to a rising dollar.
"Gold is not a hedge against problems in the eurozone, at least as far as the debt situation is concerned. That might look different in the worst case scenario," said Peter Fertig, an analyst at Quantitative Commodity Research. Talks between Greece and its creditor banks to cut back on its debt ended without agreement on Friday, pushing Athens closer to default. Greek Prime Minister Lucas Papademos said on Monday he was confident a deal on a debt swap plan would be reached. "If these talks do not make progress, gold could come under further pressure," said HSBC in a note.
Money managers cut bullish exposure in gold futures and options in the week ended January 10, leaving net long positions at their lowest level in nearly two years, according to data from the US Commodity Futures Trading Commission. On the physical side of the market, gold buying was lacklustre in main consumer India after the harvest festival season and as prices rose for a second session.
The head of India's biggest jewellery retailer said on Sunday that gold jewellery demand in India was estimated to have risen 5 to 7 percent in 2011 and is set to grow a further 10 to 15 percent this year, with bullion prices falling back after recent gains.
Jewellery sales in Italy, Europe's biggest gold jewellery exporter, fell sharply in 2011 and were expected to remain depressed in 2012 as the debt crisis and the government's austerity measures hit consumer demand, senior industry officials said on Sunday.
European demand has been hit by rising prices and economic concerns, which have hurt consumer confidence. "People don't know if they should spend money or save," said Giuseppe Aquilino, chairman of Italy's federation of jewellery retailers Federdettaglianti Orafi.
Silver was up 0.1 percent at $29.76 an ounce, broadly tracking gold. Spot platinum was up 0.8 percent at $1,491.49 an ounce, while spot palladium was up 1.8 percent at $637.47 an ounce. The gold:platinum ratio, which measures the number of platinum ounces needed to buy an ounce of gold, stood at 1.11 on Monday, up from 1.10 on Friday but well off the high of 1.15 it hit earlier this month.