Gold edged lower on Monday, pressured by a firmer dollar although it was regaining its footing after last week's biggest weekly loss in more than two months, supported by demand from jewellery makers in Asia that is helping to cushion the fall.
Spot gold lost nearly 4 percent last week, after US Federal Reserve Chairman Ben Bernanke disappointed the market by making no reference to further monetary easing in congressional testimony. Prices have since rebounded modestly and found solid support at the $1,700 level, with investors still confident in gold's appeal as real interest rates remain low and inflation looms as a longer-term concern. "There isn't much room on the downside for gold, because the sharp fall last week was an over-reaction to an unfulfilled expectation," said Hou Xinqiang, an analyst at Jinrui Futures in the southern Chinese city of Shenzhen.
Spot gold was down $2.61 an ounce at $1,709.16 at 0800 GMT after rising as high as about $1,716 an ounce. US gold was steady at $1,710.50. Technical signals suggested gold could rebound to $1,728 an ounce during the day, said Reuters market analyst Wang Tao. Asian jewellers and other buyers of physical gold were still expected to be interested in buying gold at current price levels, which are down sharply from three-month highs around $1,790 hit last week before the sell-off, although the pace of purchasing has slowed from last week's buying frenzy when prices fell below $1,700.
"The $1,710 level is still attractive for physical buyers," said a Singapore-based dealer. "Thailand is still buying and Indonesia may come in later as well." Money managers, including hedge funds and other large speculators, raised their bullish bets in US gold futures and options to the highest level in five months in the week of February 28, prior to the sharp correction in prices.