Forexpros – Gold futures trimmed gains on Wednesday, coming off the session high as the U.S. dollar erased losses against the euro, with investors continuing to shy away from opening fresh positions in the precious metal.
On the Comex division of the New York Mercantile Exchange, gold futures for April delivery traded at USD1,650.85 a troy ounce during U.S. morning trade, edging up 0.23%.
It earlier rose by as much as 0.85% to trade at a daily high of USD1,661.75 a troy ounce.
Gold futures were likely to find support at USD1,634.75 a troy ounce, the low from March 14 and short-term resistance at USD1,669.85, March 19’s high.
Gold prices took cues from the currency market on Wednesday, tracking movements in the euro. Gold remains more sensitive to moves in the euro/dollar exchange rate in the short term than to rising risk aversion, which in the past has been a positive driver of prices.
The single currency turned lower against the U.S. dollar, retreating from a two-week high.
The euro found some support earlier as markets blew a sigh of relief after the March 20 deadline for Greece to avoid a default passed.
However, worries about Europe’s debt crisis remain, amid renewed concerns over the fiscal health of Spain and Portugal and lingering worries over downbeat growth prospects in the region.
Meanwhile, investors looked ahead to a vote of confidence in Italy later in the day, which would allow Prime Minister Mario Monti’s government to press ahead with legislation to reform the country’s labor market.
Italy’s biggest labor union, CGIL, was likely to call an eight-hour strike against the labor reform proposals according to a union official.
The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was up 0.19% to trade at 80.02, reversing an earlier loss of as much as 0.4%.
A stronger U.S. dollar usually weighs on gold, as it dampens the metal’s appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.
Despite the recent slump in prices, Australian government’s Bureau of Resources and Energy Economics said it expected gold prices to rise to USD1,810 an ounce in the second half of 2012.
The report cited ongoing uncertainty in global financial markets, negative real interest rates in the U.S. and continued central bank purchases as key factors in driving prices higher.
The agency expects official purchases of gold to increase to 450 tons in 2012 from about 430 tons in 2011.
The Financial Times reported last week that the recent drop in prices has prompted one or more central banks to buy as much as four tonnes of bullion in recent weeks.
The purchases, worth about USD250 million at current prices, were made through the Bank for International Settlements.
According to the World Gold Council, central banks were avid buyers of gold in 2011, with 439.7 tonnes’ worth of purchases, the highest level since the end of the gold standard in 1971, compared with a modest 77 tonnes in 2010.
Gold prices have been under pressure in recent weeks as investors unwound long positions after the Federal Reserve gave an upbeat assessment of the U.S. economy, which reduced expectations for a third round of U.S. monetary easing by the central bank.
Gold has fallen around 8% since late February and are about 14% below the all-time high of USD1,920 per ounce hit in September.
A weak technical picture has led investors to shy away from initiating fresh long positions in the market, amid concerns over a sharper near-term correction.
Market participants noted that with prices now trading well below their long-term technical support, gold could extend losses to USD1,580 an ounce in the short term before recovering.
Elsewhere on the Comex, silver for May delivery rose 0.75% to trade at USD32.08 a troy ounce, while copper for May delivery eased up 0.15% to trade at USD3.835 a pound.
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