Gold was holding above $1,200 in price on Monday morning after bargain hunters stepped in to provide support.
Dip-buying just above $1,180 on Tuesday pushed the metal back above the psychologically important $1,200 level – it was last at $1,209.00/1,209.90 per ounce, up $3.50 on yesterday’s close.
The metal came under renewed downside pressure on Friday after forecast-beating US non-farm payrolls data that sent the dollar to two-year peaks against the euro.
The single currency has since rebounded on profit-taking to 1.2623 but soft German data this morning – industrial output in Germany fell 4.0 percent in August, the largest decline since early 2009 and significantly worse than the forecast fall of 1.5 percent – has put it under pressure again.
After yesterday’s drop in German factory orders of 5.7 percent in August, there are growing concerns that the eurozone is slipping back into recession. Also this morning, the French government budget deficit of 94.1 billion euros for August was larger than the previous month’s 84.1 billion euros.
From the US later today, the JOLTS jobs data, economic optimism and consumer credit are due. FOMC members Narayana Kocherlakota and William Dudley are also speaking.
Gold looks likely to retest $1,180 once again this week, with market participants bearish on its near-term prospects, with many fearing a break of this level could see slides down towards three figures.
Prices face pressure from the continual strength of the dollar, a lack of safe-haven demand and lack of physical purchases, though sentiment could improve as Indian buying increases in the run up to Diwali and after Chinese traders return to their desks on Thursday from the Golden Week holiday.
“It will be interesting to see whether they take advantage of the low price level to buy up gold opportunistically. If so, this would doubtless shore up the gold price,” Commerzbank said in a note. “On the other hand, gold will probably continue its downswing if the Chinese were to exercise further restraint.”
Other than physical demand, analysts have also been watching the weekly CFTC positions keenly for speculative money positioning in precious metals.
“While many agree that positioning is extreme and needs to correct, the challenge has been to find a convincing trigger for gold shorts to seek cover. A return of physical demand is perhaps the most obvious potential catalyst right now,” Edel Tully of UBS said.
In the other precious metals, platinum, which fell to a five-year low of $1,188 on Monday, has recovered strongly to $1,255/1.265 per ounce, up $24 on Tuesday’s close.
Palladium was $5 higher at $767/773 per ounce while silver at $17.47/17.51 was up 18 cents.
“We expect there may be more short-covering to be done in the short term and then we will have to see whether enough upward momentum is generated to prompt fresh follow-through buying,” FastMarkets analyst William Adams said.
(Additional reporting by Lynette Tan, editing by Mark Shaw)