SINGAPORE: Gold extended losses to a third session on Monday, falling as much as 1 percent as US President Barack Obama chose to seek Congressional approval before initiating any military action against Syria.
But silver rose 3.7 percent to $24.34 in late afternoon trading as investors covered short positions. That, along with short-covering in bullion, helped gold pare some of its losses.
Spot gold was down 0.1 percent at $1,394.30 an ounce by 0636 GMT, after earlier dropping to a one-week low.
"Ever since the lows this morning, we have had some short covering. People are using the opportunity to put out some long positions," said one Hong Kong-based trader, referring to both gold and silver.
"The moves have been exaggerated by the lack of liquidity due to the US holiday," the trader said. US markets are closed for the Labor Day holiday.
Gold had risen last week to its highest since mid-May as possible military action against Syria prompted safe-haven buying, but gave up some gains after British lawmakers voted against any involvement.
"The easing tensions in Syria have caused gold prices to dip," said Barnabas Gan, an analyst at OCBC Bank in Singapore.
"Our base case scenario is that the Syrian issue will not blow up. We are still bearish on gold," said Gan, who expects prices for the metal to fall to $1,250 by year end.
Obama stepped back from the brink over the weekend and delayed an imminent military strike against Syria to seek approval from the US Congress in a gamble that will test his ability to project American strength abroad and deploy his own power at home.
Gold has gained about $200 an ounce from its June low of $1,180.71 largely on short covering and technical buying, although it is still down about 17 percent for the year.
But with the drop below $1,400 on Friday, analysts expect further dips. Spot gold may pause around support at $1,376 per ounce, according to Reuters technicals analyst Wang Tao.
FED TAPERING
September is a key month for gold as many economists expect the US Federal Reserve to begin tapering its commodity-friendly stimulus measures this month. The Fed is expected to commence a two-day policy meeting on Sept. 17.
A scale-back would hurt prices as easy central bank money pushed gold to an all-time high of about $1,900 in 2011.
Recent economic data from the United States has disappointed, indicating that the third quarter has not gotten off to a great start.
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