SINGAPORE: Gold edged up on Thursday after two straight days of deep losses, but investors remain wary of gold's fortune after the US central bank dashed hopes for more monetary stimulus, while a weakened euro also weighs on sentiment.
Bullion lost more then 3 percent over the past two days after the US Federal Reserve released minutes from its last policy meeting which showed policy makers were less inclined to launch more monetary stimulus as the economic outlook gradually improves.
The sentiment dimmed gold's appeal as an inflation hedge which had attracted investors who expected more money-printing by the Fed to buoy the economy.
"The world in 2011 was all about QE (quantitative easing) and more potential QE. Now the environment is a little different - the US economy is back on better footing and needs less central bank help," said Dominic Schnider, head of commodity research at UBS Wealth Management in Singapore.
Schnider estimated that investment demand globally would have to grow at least 20 percent this year to absorb higher mine production, and shortfalls in jewellery demand and central bank purchases.
"The 20-percent growth is in question since the macro picture has brightened."
Globally, investment demand in 2011 gained 5 percent to a record 1,640.7 tonnes as the uncertain economic picture burnished gold's appeal as a safe-haven investment, according to the World Gold Council.
Spot gold inched up 0.2 percent to $1,622.99 an ounce by 0248 GMT, off a near three-month low of $1,611.80 hit in the previous session.
US gold gained 0.7 percent to $1,624.70.
Adding pressure on gold, the euro fell to a three-month low against the dollar on Wednesday as worries about the euro zone debt crisis rekindled after a poorly received Spanish government bond sales.
The dollar index rose to its highest level in nearly two weeks at the expense of a weaker euro, dampening purchasing interest in dollar-priced commodities from buyers holding other commodities.
HESITANT PHYSICAL BUYING
The sharp drop in prices only managed to attract light buying in Asia's physical market as investors are wary of potential further weakness in prices.
"The sentiment is rather bearish," said a Hong Kong-based dealer, adding that public holidays in various Asian countries this week have kept market activities muted.
China's financial markets reopened after a three-day break, while a number of countries in Asia and the West will be closed on Friday and next Monday.
The popular Shanghai gold spot deferred contract fell 2.4 percent to 331.11 yuan a gram, or $1,631.9 an ounce.
Investors will be watching a key US job market report due Friday to gauge the pace of recovery at the world's top economy, after a report said on Wednesday that US businesses added more than 200,000 jobs in March.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings were unchanged at 1,286.621 tonnes by Wednesday. But holdings in the world's key gold ETFs gained 44,761 ounces on the day to 70.4 million ounces (2,190 tonnes).
Spot silver edged up 0.3 percent to $31.41 an ounce, after sliding 4 percent in the previous session -- its largest daily decline in more than a month.
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