LONDON: Gold prices slipped back below $1,620 an ounce on Monday as weakness in stock markets reflected softer risk appetite among investors, but remained underpinned by expectations that the European Central Bank would step in to support the euro.
The precious metal is taking broad support from resulting dollar weakness, and speculation that weak global growth would prompt further stimulus measures from central banks.
Last week's more than 1 percent gain in gold prices was achieved largely on the back of hopes the ECB would take further steps such as bond-buying to support the single currency, which has been battered this year by the euro zone debt crisis.
Spot gold was down 0.1 percent at $1,617.46 an ounce at 1429 GMT, while US gold futures for August delivery were down $2.60 an ounce at $1,620.20. Gold earlier touched a high of $1,625.21, but remained firmly within the $51 range in which it has traded since late July.
"Gold has repeatedly tested the resistance level around $1,625-30 since the start of June," BNP Paribas analyst Anne-Laure Tremblay said. "We do not see a strong impetus for gold to break its resistance level decisively higher before the end of August, when Fed Chairman Bernanke is due to speak, and potentially announce a further round of quantitative easing."
"Positive news for gold, likely linked to an increase in market liquidity, could trigger a short squeeze, given that short managed money futures positions are at their highest level since September 2008," she added.
The euro was up 0.6 percent against the dollar. Jitters over the global economy weighed on stock markets, with Japan the latest country to post weak second-quarter growth data on Monday, after readings from the United States, China and the UK showed either slowing or stalling expansion.
Short-term Spanish government bond yields rose meanwhile, with some investors expecting Madrid's debt crisis to worsen before policymakers make any move to lower its borrowing costs.
Further steps to boost growth, such as quantitative easing - roughly money printing to buy bonds - would probably boost gold by increasing liquidity, keeping interest rates low and in the longer run fuelling fears of inflation.
"The gold market could move higher, or at least hold its ground, on the back of current speculation and building market sentiments towards future monetary easing/QE," Marex Spectron said in a note.
CAUTIOUS NOTE
Investors remained cautious. Hedge funds and money managers cut their net long position in US gold futures and options in the week to Aug. 7, reducing bullish bets on doubts over more imminent monetary stimulus by the Federal Reserve and other central banks.
"Money managers ... are exercising restraint when it comes to gold," Commerzbank said in a note. "Net long positions were slashed by 14 percent to 69,700 contracts in the week to 7 August and are thus only just above the 3-1/2 year low they hit at the end of July."
"Net long positions in silver, on the other hand, have tripled in just two weeks. At a good 9,000 contracts, they have achieved their highest level for 14 weeks," it added.
Silver was down 0.7 percent at $27.92 an ounce. Spot platinum was down 0.4 percent at $1,387.70 an ounce, while palladium was down 0.6 percent at $574.25 an ounce.
Platinum widened its discount to gold to more than $230 an ounce early on Monday, a historic level for a metal that has traditionally traded well above gold prices. Platinum has fallen in 16 out of the last 20 weeks and is virtually flat on the year after falling more than 20 percent in 2011.
The gold/platinum ratio, which measures the number of platinum ounces needed to buy an ounce of gold, hit its highest since 1985 on Monday at 1.16. In the intervening period, it has stood at an average 0.76.
Platinum, an autocatalyst metal most heavily used in diesel engines, has suffered from lower demand from European carmakers, its main consumer group. Even the threat of supply outages in major producer South Africa has failed to reverse its decline.
A worker was killed on Monday in renewed violence between rival unions at a South African mine operated by world number three platinum producer Lonmin , the head of the National Union of Mineworkers (NUM) said.
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