Gold traded in a two-dollar range on Wednesday, holding near a 1-1/2-week high hit in the previous session when Germany's central bank expressed concerns about the euro zone crisis and the European Central Bank's moves to stem it.
Germany's Bundesbank said the euro zone crisis, which has eased as a result of the ECB's funding promises, was not over, and that it had set aside billions more euros against what it deems risky ECB moves.
The remark sent gold above $1,585 an ounce, the upside boundary of a recent trading range, on a combination of safe-haven demand and technical buying. Though the bounce may not last long as gold is still pressured by an improving economic outlook.
"The price rise yesterday will not sustain as there was no major change in fundamentals," said Chen Min, an analyst at Jinrui Futures in the southern Chinese city of Shenzhen, adding that gold is still feeling a downwards pull.
"We'll see strong influence from technicals on prices as there isn't much data on the plate this week."
Technical signals on spot gold are mixed, however, said Reuters market analyst Wang Tao, with it unclear if a wave c will extend.
Investors will be watching the all-important policy meeting of the Federal Reserve on March 19-20, to gauge the central bank's attitude towards monetary stimulus.
An exit from the stimulus would deal a heavy blow to gold, which has thrived on the demand of investors who buy gold to hedge against the inflation risks of loose monetary policies.
Spot gold was little changed at $1,592.96 an ounce at 0255 GMT, down just 0.3 percent from the $1,598.2 high of the previous session, its highest since Feb. 28.
US gold traded nearly flat at $1,592.20.
Holdings of SPDR Gold Trust, the world's biggest gold-backed, exchange-traded fund, fell for a fourth straight session to 1,236.307 tonnes on March 12, its lowest since October 2011. The outflow this year of 114.51 tonnes has more than wiped out last year's inflow of 96.25 tonnes.
Though investors remained lukewarm towards gold, large short positions in US gold would add to the fuel should gold prices rise past another key technical level, as traders would be forced to close bearish positions to limit losses.
"There is a good possibility of short-covering when something happens," said Yuichi Ikemizu, head of commodity trading, Japan, at Standard Bank.For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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