RTRS: Gold retreats from highs as Fed-led rally fizzles
(Reuters) - Gold steadied on Tuesday, surrendering earlier gains as a rally sparked by expectations that a sluggish U.S. employment market could fuel further quantitative easing ran out of steam in the face of a firming dollar and easing appetite for risk.
Spot gold was up 0.2 percent at $1,643.46 an ounce at 1404 GMT, well below an earlier high of $1,654.10. U.S. gold futures for June delivery were up $1.10 at $1,645.00.
Ultra-loose U.S. monetary policy, which keeps real interest rates low, has been a key driver of higher bullion prices.
These fell to three-month lows a week ago after minutes from the Federal Reserve's last meeting suggested no extension to easing, and have struggled to rise significantly since then despite weakness in a key U.S. payrolls report on Friday.
"It is surprising that the market reaction to the Fed minutes, which was basically what they said a month ago, was greater than the reality of softer data," Macquarie analyst Hayden Atkins Said. "The market seems surprisingly weak to me."
The euro failed to hold onto early gains against the dollar and drifted lower on growing concerns about euro zone sovereign debt. Analysts said more rises in Spanish and Italian bond yields could weaken the single currency further.
Other assets seen as higher risk also retreated, with European shares falling more than 1 percent, and oil and base metals prices slipping. Soft Chinese import data raised concerns about commodities demand growth. .EU
Gold prices have fallen in five of the last six weeks as so-called risk assets have struggled.
"It looks like we need bigger and better news to support gold right now," Saxo Bank vice president Ole Hansen said. "Traders have been wrong footed on numerous occasions during the last two months on QE on/off talks.
"The non-farm payrolls and India ending its (jewelers') strike should have triggered a stronger bounce, but at this moment, where general softness in commodities has been seen, traders want to see the cash before jumping back into gold in a major way."
Gold demand in number one buyer India has struggled to recover after a three-week-long jewelers' strike ended. Daily gold sales in India in the last two days are down 80 percent from a year ago.
"For gold to turn a corner and build momentum, physical buying really needs to kick in," said UBS in a note on Tuesday. "The end of the jewelers' strike in India provides a good foundation... but prices need to be appropriate."
"Last week, Indian demand only became impressive when gold traded below $1,620," it added. "Appetite from India so far this week has been quite modest. Premiums in China have been above average of late. But in terms of volumes... gold turnover on the Shanghai Gold Exchange is not particularly exceptional."
China's gold output was 26.9 metric tonnes (29.65 tons) in February, up 11 percent from January, the Ministry of Industry and Information Technology said on Tuesday, after mining activity rebounded after the Lunar New Year holidays in January.
China is the world's biggest gold producer and had record output last year, although its domestic demand still outstrips supply by hundreds of tonnes a year.
Among other precious metals, silver rose 0.1 percent to $31.55 an ounce. The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, rose to its highest since early January on Tuesday.
Silver imports into India, the biggest consumer of the white metal, are likely to decline by up to 27 percent this year on expectations of volatile prices, the head of the country's biggest bullion importer, ScotiaMocatta's Sunil Kashyap, said on Monday.
Spot platinum was down 0.7 percent at $1,595.49 an ounce, while spot palladium was down 0.8 percent at $632.97 an ounce.
