London - Gold prices steadied on Monday after retreating from an 11-week high above $1,400 an ounce hit overnight in Asia, as uncertainty over the outlook for US monetary policy kept the metal in check.
Weak US data on Friday and news the world's largest gold-backed exchange traded fund had seen its biggest one-day inflow this year supported an early rally, with a breach of key chart levels sparking a jump to $1,406.01, its highest since June 7.
However, it quickly eased back to trade little changed from Friday, after the technically-driven rally ran out of steam.
Spot gold stood at $1,397.40 an ounce by 14:40 SA time.
The metal rose 1.6 percent on Friday after weak US home sales data, which potentially weakened the case for the Federal Reserve to taper economic stimulus.
“The market is very nervous and unsure, therefore we need a direction. (The) Fed and US dollar seem to be it for the time being,” said Afshin Nabavi, head of trading at MKS in Switzerland.
1,400 is a big resistance, although overnight we tested 1,407, due to stops.”
“Demand for physical has cooled off due to the sudden rally,” he said.
“We gained almost $35-40 in a short span of time; the market needs to cool off before real buying comes in.”
US gold futures for December delivery edged up $2.00 an ounce at $1,397.80.
Trading was expected to be quiet on Monday with London dealers absent for a national holiday.
The dollar index also steadied on Monday, although moves were muted as investors awaited clearer guidance on the prospects for an early withdrawal of stimulus by the Fed.
Gold is particularly sensitive to US monetary policy.
The Fed's quantitative easing programme was a key factor driving gold to record highs in 2011, as it kept long-term interest rates at rock bottom, while fuelling fears of inflation.
A top US central banker said on Saturday the Federal Reserve could announce a cautious first step in tapering bond purchases at its meeting next month, provided there were no “really worrisome” signs the economy was faltering.
INVESTOR SENTIMENT IMPROVES
Investment demand showed signs of recovery.
Hedge funds and money managers boosted bullish bets in gold futures and options to their highest since early February, a report by the Commodity Futures Trading Commission showed on Friday.
The SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings rose 6.61 tonnes to 920.13 tonnes on Friday, its biggest one-day inflow since October 8.
“On balance, there have... been no further outflows from the gold ETFs in the past two weeks, so investment demand appears to be gradually picking up again,” Commerzbank said in a note.
In South Africa, the National Union of Mineworkers (NUM) gave gold mining companies seven days on Saturday to meet its demand for pay rises of up to 60 percent or face strike action.
NUM, the main mining union, walked out of deadlocked wage talks with the companies last week.
South Africa accounts for 6 percent of total gold output.
Among other precious metals, spot platinum was down 0.3 percent at $1,534.99 an ounce, while spot palladium was up 0.2 percent at $752 an ounce.
Silver was up 0.1 percent at $24.01 an ounce. - Reuters