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Mon 20 Feb 2012 08:35 AM

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Gold advances on Greece optimism, China easing

Easing monetary stance boosts sentiment in gold by raising the inflation outlook

Gold advances on Greece optimism, China easing

Gold prices climbed more than half a percent on Monday, as investors buoyed by easing moves by China's central bank and hopes for Greece to seal a bailout deal at a meeting with euro zone officials later in the day.

An easing monetary stance boosts sentiment in gold by raising the inflation outlook down the road and attracting investors to bullion, a good hedge against inflation.

China cut its required reserve ratio over the weekend, joining a number of central banks in relaxing monetary policies to promote economic growth while the euro zone debt crisis continues to overhang the global economy.

The optimism on a deal later in the day between Greece and euro zone on the second bailout for Greece sent equities and the euro up, helping support gold. 

"There is the expectation that everyone is going to relax monetary policy, which will be good for stocks and commodities," said Ronald Leung, a physical dealer with Lee Cheong Precious Metals in Hong Kong.

Spot gold rose 0.6 percent to $1,733.96 an ounce by 0406 GMT, on course for its biggest daily rise in two weeks. U.S. gold gained 0.6 percent to $1,735.80.

Technical analysis suggested that spot gold could rise to $1,747 an ounce during the day, said Reuters market analyst Wang Tao. 

Gold has been caught in a range between $1,700 and $1,760 since the beginning of February, as investors watch Greece grind towards a deal with its international lenders on tough reforms and austerity measures in exchange for a 130-billion-euro bailout.

"Gold is searching for its next catalyst and has been caught between healthy, albeit slower, investment demand and some support from the physical market," said Barclays Capital in a research note.

A small amount of buying and selling was spotted in Asia's physical market, dealers said.

Money managers in gold futures and options reduced their net long position in the week of Feb. 14, their first decline in five weeks, as investors unwound some safe-haven bets due to optimism surrounding the Greek debt crisis.

In silver, net long positions rose to a five-month high to 25,747 contracts, in tandem with rising length in industrial metals such as copper.