SINGAPORE: Gold regained strength on Wednesday after falling to a 1-month low in the previous session, but declines in ETF holdings to their lowest in 10 months suggested that speculators could still sell bullion to raise liquidity if equities extend losses.
Investors closely watched a nuclear crisis in Japan triggered by a deadly earthquake on Friday, but the physical market slowed to a trickle after bargain hunting resurfaced at lower levels, putting pressure on premiums.
Another fire broke out on Wednesday at an earthquake-crippled Japanese nuclear plant that has sent low levels of radiation wafting into Tokyo and triggered international alarm, suggesting the crisis may be slipping out of control.
Spot gold added $2.75 an ounce to $1,396.70 an ounce by 0031 GMT, having fallen as low as $1,380.90 an ounce on Tuesday, its weakest since mid-February. Gold was trading below the 25-day moving average around $1,403.
"I think sentiment is a bit mixed now. We don't know yet how the nuclear crisis will affect the world. Everything seems to stop in Japan, so the economy will deteriorate. We don't know
whether if will affect other areas," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.
"We heard there was some physical buying at about $1,390," said Leung, adding that jewellers had deserted the physical market at current price levels.
Premiums for gold bars in Hong Kong were offered from as little as 90 cents to the spot London prices to as high as $1.70, reflecting an illiquid market.
The world's largest gold-backed exchange-traded fund, SPDR Gold Trust , said its holdings fell further to 1,212.745 tonnes by March 15, their lowest since May of last year, from 1,213.655 tonnes on March 14.
Silver ticked down, having dropped to its lowest level since late February on Tuesday. Platinum and palladium failed to sustain an early rebound on worries the crisis in Japan could affect demand for the metals, which are mainly used in auto catalytic converters.
Japan's major car plants were shut following Friday's devastating earthquake, in which officials say at least 10,000 people were killed, and remain closed as power supplies are disrupted and companies struggle to gather information amid the chaotic situation in the country.
US gold futures for April rose $4.5 an ounce to $1,397.3 an ounce.Premiums for gold bars were unchanged at $1 an ounce to the spot London prices in Singapore, a centre for bullion trading in Southeast Asia.
"I guess supplies are still limited and many people do not want to take delivery if the destinations are far away. They fear the price will bounce back further," said a dealer in Singapore.
"It's a very tricky situation. Last night, we even saw buy orders at $1,380, so everyone just trembles when there's the slightest ripple in the market."
The yen stood within a whisker of a record high against the dollar on Wednesday, while the Swiss franc held at all-time highs as jitters about Japan's nuclear crisis kept investors on edge. Since the massive earthquake and tsunami hit Japan, the yen has risen partly on expectations Japanese insurers and companies will repatriate funds to help pay claims and reconstruction costs. But fears of intervention by Japanese authorities to weaken the yen has limited its upside so far.
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