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Mon 9 Feb 2015 11:40 AM

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Gold gains on weaker Asian shares, still near 3-week low

Investor sentiment in bullion has taken a hit recently

Gold gains on weaker Asian shares, still near 3-week low
(Getty Images)

Gold edged higher on Monday, as Asian equity
markets fell on disappointing Chinese economic data, but the metal failed to
make much headway from a three-week low in the previous session due to worries
over US interest rates.

Spot gold had gained 0.3 percent to $1,236.38 an
ounce by 0346 GMT as Asian shares slipped after dismal Chinese trade data that
raised concerns about a deepening slowdown in the world's second-largest

Bullion hit a three-week low of $1,228.25 on
Friday, before closing the session down 2.5 percent, after strong US jobs data
that stoked expectations of a hike in interest rates.

"The small bounce we are seeing today is
probably because of the drop in equities but it may not hold," said Ronald
Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.

"The bigger factor influencing gold prices is
still the timing of the interest rate hike in the United States."

Data on Friday showed US job growth rose solidly in
January and wages rebounded, a show of economic strength that put a mid-year
interest rate increase from the Federal Reserve back on the table.

The US central bank has held benchmark borrowing
costs near zero since December 2008, and some believe the jobs data has raised
the prospect it would push rates higher, despite inflation running below its 2
percent target.

Higher interest rates could dent demand for gold, a
non-interest-bearing asset, and boost the dollar.

Investor sentiment in bullion has taken a hit

Hedge funds and money managers cut their bullish
bets in gold and silver futures and options for the first time in six weeks
during the week to Feb. 3, US Commodity Futures Trading Commission data showed
on Friday.

In the physical markets, Chinese premiums rose to
$4-$5 an ounce on Monday, from less than $4 in the previous session, as last
week's sharp decline in prices attracted some buyers.

But traders were not confident of support from the
top consumer over the next few days due to the upcoming Lunar New Year holiday.

Chinese consumers typically purchase gold for
gift-giving ahead of the new year holiday on Feb 19-20, but buying is likely to
slow during and just before the holiday itself, traders said.

"With Chinese New Year nearly here, the buying
activity would have mostly concluded so don't expect much seasonal support from
the Chinese at this point," said Howie Lee, an analyst at Phillip Futures
in Singapore.

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