RTRS: PRECIOUS-Gold extends gains, but capped at $890/oz
Gold edged up on Tuesday, helped by light physical buying after a sharp rise a day earlier when worries over the health of the U.S. banking sector dragged down equities and enhanced gold's safe-haven appeal.
But it was capped at around $890 per ounce as traders were unsure if the upward momentum led by short-term investors was sustainable, preferring to see how European and U.S. equities performed before taking bigger positions.
"The market wants to take a look at the Dow Jones tonight and Europe's stock markets as well," said Dick Poon, a division manager of precious metals at Heraeus Ltd in Hong Kong.
Traders also said a further rise in the dollar against the euro could undermine gold prices. A higher dollar makes dollar-priced bullion more expensive for non-U.S. investors.
Spot gold stood at $886.0 per ounce by 0331 GMT, up 0.2 percent from the notional close in New York of $884.15.
Gold rallied almost 2 percent on Monday, after the Dow Jones industrial average .DJI sank 3.6 percent as Bank of America (BAC.N) reported a jump in non-performing assets, underscoring troubles in the banking sector. [ID:nN20380236]
Holdings at the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust GLD, remained unchanged on Monday. [GOL/SPDR]
But the holdings fell 21.7 tonnes, or nearly 2 percent, on Thursday and Friday, when the Dow rallied to two-month highs.
Naomi Suzuki, a senior analyst at SC Asset Management Co, said the two-day sell-off was double India's gold imports in the first 15 days of April, which had been sharply up from zero in March.
"The only reason that gold fell was the massive sell-off in the ETF, if it weren't for that the market would have gained ground," Suzuki said, but added that renewed investor risk aversion this week was supporting gold.
"When stocks are down and market volatility is up like it is now, it's natural for investors to grow cautious about selling," she said.
Investment demand had helped send gold to above $1,000 an ounce in late February, after which bullion fell 14 percent to a three-month low of $864 marked late last week.
But gold's failure to break above $900 recently illustrates fading demand from investors as well as from industry and jewellery buyers.
