Gold prices steadied on Monday as a firmer tone to the dollar offset earlier gains resulting from soft euro zone data and political deadlock in Italy and the United States, which hit riskier assets including stocks. Gold is down more than 5 percent this year, pressured by perceptions that stocks and other higher-yielding assets may offer a better return as global growth recovers. Its correlation with European stock markets turned negative last month.
The metal rose as high as $1,584.50 in earlier trade as European stocks fell but surrendered those gains as the dollar rose towards Friday's 2-1/2 month high versus the euro. Spot gold was flat at $1,574.44 an ounce at 1510 GMT, while US gold futures for April delivery were up $2.30 an ounce at $1,574.60. The single currency has been hurt by expectations that euro zone economic worries could prompt the European Central Bank to cut interest rates sooner than previously anticipated, while the dollar shrugged off the impact of broad US spending cuts that automatically kicked in on Friday.
"You'd expect that when you have this kind of political uncertainty on the fiscal side, on the monetary policy side ... that would lead investors to hold gold as a safe haven, but for now it seems like the dollar channel has been dominating," Danske Bank analyst Christin Tuxen said. "Going forward I still think gold could see a bit of a comeback given that we have very aggressive monetary easing in place in some key regions," she added, noting that investors would tread carefully ahead of the ECB's meeting on Thursday.
Ultra-loose monetary policy, known as quantitative easing, has supported gold in recent years by keeping up pressure on long-term interest rates and stoking fears over inflation, while concerns over global economic weakness boosted safe-haven flows. Hedge funds and money managers increased their net long gold futures and options positions in the week to February 26 after cutting them sharply in the previous week, Commodity Futures Trading Commission data showed on Friday.
"Clearly, participants were encouraged to reposition at these lower prices," Standard Bank said in a note. However, the largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, showed an outflow of 0.6 tonnes on Friday, its eighth straight day of outflows after reporting the biggest ever one-month drop in February. Gold prices fell for a fifth month in February for the first time since 1997 as investors lost faith in the metal, which failed to rally back towards record highs last year despite successive rounds of monetary easing from the Federal Reserve.
"The fact that the United States and China are not doing badly at all is slowly but surely chipping away at the 'global systemic risk' driver of gold ETF demand," Citi said in a note. Among other precious metals, silver was down 0.1 percent at $28.51 an ounce, while spot platinum was up 0.4 percent at $1,574.25 an ounce and spot palladium was up 0.3 percent at $720.22 an ounce.
Platinum pared its 2013 gains last month but has remained the best performer of the precious metals this year, up 2.7 percent, lifted by concerns over supply outages in South Africa and signs the global economy may be turning, boosting demand. "Whereas the supply concerns persist, the outlook for growth looks less bullish as the situation in Europe has deteriorated again and US spending cuts look more likely as the government starts to tackle the budget deficit," ScotiaMocatta said in a monthly note. "The latter, combined with the fact prices had already rallied strongly, seems to have been enough to attract some profit-taking."