Gold retreats from 6-1/2 month high as dollar firms

LONDON: Gold prices eased nearly 1 percent on Monday, pulling back from the previous session's 6-1/2 month high, as the dollar rose and assets seen as higher risk, like stocks, the euro and other commodities like crude oil retreated.

The metal remained underpinned however, by expectations for longer-term price strength, after central banks including the Federal Reserve and European Central Bank announced fresh rounds of monetary policy easing earlier this month.

Spot gold was down 0.8 percent at $1,758.51 an ounce at 0940 GMT, while US gold futures for December delivery were down $16.80 an ounce at $1,761.20. On Friday gold hit a peak of $1,787.20, its highest since Feb. 29.

The Fed this month launched a third round of quantitative easing - printing money to buy bonds - under which it will purchase $40 billion a month in mortgage-backed debt until the outlook for the labour market improves substantially.

Further monetary easing is likely to maintain pressure on long-term interest rates, keeping the opportunity cost of holding gold at rock bottom, and to undermine the dollar, boost liquidity, and stoke fears over inflation further down the line.

However, a stronger dollar and caution among investors over the uncertain outlook for Europe has put the brakes on gold.

"Part of the issue is the lack of obvious catalysts in the near term to take gold prices higher," Deutsche Bank analyst Daniel Brebner said. "We have some continuing risk issues in Europe, US manufacturing data continues to be for the most part disappointing, and Chinese growth continues to be a real risk as well in the near term."

"There are a number of low growth concerns which could underpin the dollar, and keep gold somewhat moribund near term."

"But I do think we will likely see over the next quarter or so greater policy action both in Europe and China to support growth within those regions," he added. "The likelihood is for further accommodative monetary policy in both regions, and that could keep the gold price moving higher. We think we will see $2,000-plus gold prices in the first half of next year."

European shares and the euro followed a broad range of riskier assets lower on Monday as investors refocused attention from central bank stimulus schemes to weak economic fundamentals and the euro zone's yet-to-be-resolved debt crisis.

 Bund futures rose after a worse-than-expected German business sentiment survey, and were expected to gain further in the near term as Spain's reluctance to seek a bailout unnerved investors.