Gold holds above $1,600 as Cyprus fallout supports

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Gold held steady above US$1,600 an ounce on Thursday on worries the Cyprus rescue deal could become a blueprint for solving banking crises in the euro zone, supporting the precious metal's safe-haven appeal.

Gold is on track for a 1.6 percent gain in March, its first monthly gain in six, amid concerns about the financial stability of the euro zone stoked by the crisis in Cyprus, where hundreds of anxious depositors are expected to besiege banks when they finally reopen later in the day.

"We continue to maintain the short-term outlook out of Europe remains uncertain enough to give the gold market a degree of support for the balance of the week and heading into early next week," said Edward Meir, metals analyst at futures brokerage INTL FCStone.

"Although the Cypriot situation will likely fade from the headlines over the course of the next month, the unusual circumstances behind the country's rescue will likely linger for some time longer."

Gold was little changed at US$1,605.54 an ounce by 0303 GMT, still below a one-month high around US$1,616 hit last week. It rallied to an all-time high around US$1,920 in September 2011, when a worsening debt crisis in Europe sparked a buying rush.

US gold for April was at US$1,605.50 an ounce, down 70 cents. 

The Cyprus bailout is the first in Europe's single currency zone to impose losses on bank depositors and raises the prospect of savers pulling money out of some other euro zone countries perceived to be weak - a worry that supports gold.

Cyprus will reopen its banks with tight controls imposed on transactions to prevent fleeing depositors from cleaning out the vaults in a catastrophic bank run.

"Of course we are waiting for the banks to reopen today," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong, referring to the lenders in Cyprus.

"I think for the time being gold is rangebound. The upside at US$1,610 or US$1,615 will be capped for a while. When the price dips below US$1,600, maybe there will be scale-down buying."

Also underpinning gold was hopes the Federal Reserve will maintain its loose monetary policy after top policymakers said the US central bank should continue its bullion-friendly bond-purchases at least through 2013.

Fears that central banks' money-printing to buy assets will stoke inflation have been a key driver in boosting gold, sending prices to an 11-month high last October after the Fed announced its third round of aggressive economic stimulus.

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