Investors stay cautious as EU nations struggle to contain the region's two-year-old debt crisis
Spot gold rose more than half a percent in thin trade on
Wednesday, on course for a third consecutive session of gains, as investors
continue to watch euro zone nations struggle to contain the region's
two-year-old debt crisis.
European Central Bank governing council member Christian
Noyer said the situation in Europe has significantly worsened, threatening
global financial markets.
But the euro retained gains against the dollar made in the
previous session, underpinned by the agreement by euro zone's finance ministers
on Tuesday to ramp up the firepower of their rescue fund, even though details
"The dollar is
slightly weaker compared to yesterday and gold is getting ahead," said a
Shanghai-based trader, "But there is no clear direction in the market and
people prefer to hold cash under such circumstance."
A weaker dollar usually boosts commodities, as they become
cheaper for buyers holding other currencies.
Spot gold rose as much as 0.7 percent to a more than one
week high of $1,726 and breached above the 100-day moving average at $1,720.59,
before easing to $1,723.79 an ounce by 0250 GMT.
US gold gained 0.6 percent to $1,723 in thin volume.
Technical analysis suggested spot gold could rise to $1,743
during the day after it has cleared a resistance at $1,716, said Reuters market
analyst Wang Tao.
The prospect of
easing monetary policy in Europe and other key economies around the world also
helped support the sentiment in gold, as rising inflation down the road makes
gold's appeal as a good inflation hedge stronger.
A Reuters poll showed that economists expect the European
Central Bank will cut interest rates next week and throw more funding lifelines
to stressed banks toiling against the euro zone debt crisis.
Trading on Asia's bullion market remained muted, as buyers
have retreated to the sidelines as prices rebounded above $1,700.
Premium on gold bars in Hong Kong were steady in the range
of $1 to $1.50 an ounce above spot prices, dealers said.
"Gold is likely to be rangebound between $1,700 and
$1,750 as what's happening in Europe remains the center of focus," said
Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.
In India, the world's largest gold buyer, consumers have
been delaying purchases, even cashing in hoarded gold, as local gold prices
held near record highs as a result of a weak rupee.