RTRS: Gold firms as low prices tempt buyers, stocks dip
Gold firmed in Europe on Monday as last week's price fall tempted jewelry and other physical buyers back to the market and as stock markets weakened, but a firmer dollar kept a lid on gains.
A second consecutive daily decline in holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, has also raised fears investors are selling the metal to buy back into other assets such as stocks.
Spot gold was bid at $871.45 an ounce at 1130 GMT (7:30 a.m. EDT), against $867.90 an ounce late in New York on Friday.
"There are bargain hunters lined up," said Afshin Nabavi, head of trading at MKS Finance in Geneva. "Demand is picking up. India seems to be hungry for gold prior to the wedding season."
"Overall the physical demand at these levels is becoming a bit more interesting."
Gold demand in India, the world's biggest jewelry buyer, remains firm as traders stock up ahead of the Akshaya Tritya festival on April 27, with lower prices encouraging the trend.
Prices slipped 1.5 percent last week, hurt by a recovery in the equity markets amid tentative expectations the economic slowdown may be bottoming out.
The SPDR Gold Trust ETF saw its largest two-day outflow since early September last week, with its total holdings declining 21.7 tonnes or nearly 2 percent on Thursday and Friday.
London's ETF Securities also said holdings of its three gold-backed exchange-traded commodities dipped 1.0 percent last week.
This has raised fears investors are selling their ETF holdings to buy back into so-called riskier assets like stocks.
If this trend continues, the pressure on price exerted by the release of gold stocks onto the market is likely to overwhelm firmer jewelry demand.
ALTERNATIVE
A recovery in the dollar is also weighing on gold, which is often bought as an alternative investment to the U.S. currency. The unit hit a one-month high against the euro as losses in equities prompted buying of the dollar as a haven.
"The dollar remains surprisingly strong, surging toward 86 points on a trade-weighted basis," said VTB Capital analyst Andrey Kryuchenkov in a note. "A break above this resistance would be very bearish for gold and could trigger more losses."
"For now, a sustained close below $865 would signal a heavier sell off," he added. "All focus will be on the equity markets this week, though."
