Gold traded flat on Wednesday as short-covering helped the metal recover some of the previous session's losses, but waning interest from investment funds and an improving US economic outlook impeded gains. Bullion, which has taken to follow riskier assets, failed to hold early gains as investor appetite was lacklustre based on a higher dollar index and a flat US equities market after data showed US existing home sales data was worse than expected.
Gold buying sentiment weakened after data showed holdings of gold in the world's largest gold exchange-traded funds fell sharply to post its biggest one-day decline in three months. That reflected some of the investor shift away from bullion. "There seems to be less sponsorship from funds and less speculative interest in the market. The European sovereign debt situation is quiet at the moment and US economic data is decent," said Bill O'Neill, partner of commodities investment firm LOGIC Advisors.
Spot gold edged up 78 cents on the day at $1,650.81 an ounce by 1:17 pm EST (1717 GMT). Gold fell 3 percent last week, removing the gains in January that were based on expectations of further US monetary easing, as the Federal Reserve has offered few clues on any further action.
The metal has now fallen more than $100 an ounce from a February 29 peak of $1,790, driven by growing confidence that the US economy is on track for a recovery and that Greece has averted a chaotic default. "For me, the market is starting to look at conditions as being more normal. Obviously, the evidence is the equity markets in particular and the S&P 500 ... and the fact that we are in a bit of a pause on monetary policy," Deutsche Bank analyst Daniel Brebner said.
Gold prices received a slight boost after British finance minister George Osborne said that he planned to increase Britain's reserves for the 2012-2013 fiscal year. However, bullion retreated after a UK Treasury spokesman said there were no plans to raise the gold holdings. US gold futures for April delivery were up $3.70 at $1,650.70 an ounce at slightly lower-than-usual volume.
Gold buying sentiment took a toll when US CFTC data showed money managers, including hedge funds and other large speculators, trimmed their net long position to the lowest level since the final week of January. Gold ETF holdings dropped by over 100,000 ounces to 70.715 million ounces, their lowest level this month. Palladium fell after data that showed imports into China, the world's largest consumer of commodities, fell to their lowest since December 2009 in February this year. Spot palladium was down 0.4 percent on the day at $686.50 an ounce, while platinum fell 0.8 percent to $1,634.50 an ounce. Silver was up a penny at $32.12 an ounce.