Gold edged higher to settle at $1,678 per ounce on Wednesday, recovering early losses, as stocks came under pressure from renewed concerns over the euro zone economy, and on caution ahead of a European Central Bank meeting later this week
Platinum and palladium held near 17-month highs, benefiting from rising appetite for industrial metals as confidence in the growth outlook improved, and on concerns over the supply outlook from major producers South Africa and Russia.
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European stocks surrendered early gains to fall 0.5 percent as the previous session's tentative recovery lost steam, with euro zone banks sliding on renewed concerns over the health of the region's economy.
Gold traded in line with stocks for much of last year, but has developed an inverse relationship to them in recent days.
"Gold seems to have disconnected from most other markets as investors simply don't know in which direction you will get the next $100 move," Saxo Bank analyst Ole Hansen said. "We have not closed above or below the 50- and 200-day simple moving average for the past six days (today $1,664-$1,678). Once that happens we may get the clue as to which of the two key support and resistance levels will be tested first."
The euro fell 0.5 percent against the dollar. ECB president Mario Draghi is likely to face tough questions on Thursday about the impact of the euro's recent appreciation on growth and inflation speculation, although the bank is unlikely to contemplate an interest rate cut.
French President Francois Hollande urged the euro zone on Tuesday to set a mid-term target for its currency's exchange rate, ahead of an EU summit where the bloc will seek to overcome its budget stalemate.
Gold prices are flat from the start of the year, struggling for traction as a run of better economic data boosted the appeal of assets more highly geared to the economic cycle, such as stocks and industrial commodities.
"Certainly the stronger performance of more conventional assets, certainly equity markets, has taken the shine off gold," Deutsche Bank analyst Daniel Brebner said.
"Safe-haven assets have performed fairly poorly as expectations of growth have improved... and a lot of those debt-related risks have for the time being faded into the background. In that kind of environment, there is no signficant motivation for gold prices to rise on the basis of investment demand."
Indian Central Bank Mulls Gold Import Curbs
The Reserve Bank of India said on Wednesday it could limit gold imports by banks in "extreme circumstances", as the world's biggest consumer of gold battles a record-high current account deficit.
Customs data showed yesterday that gold flows from Hong Kong into China, which is vying with India as the leading buyer of bullion, hit record levels last year.
"Some caution is warranted when making direct links to underlying demand," UBS said in a note. "Nevertheless, Hong Kong trade statistics, considered together with other indicators such as activity on the SGE, still paint a robust demand story out of China towards the end of 2012 through to early this year."
The positive economic data that has undermined gold fuelled interest in the platinum group metals, which are chiefly used in autocatalysts and highly exposed to car demand. Platinum and palladium prices both hit multi-month highs on Wednesday.
Spot platinum hit a near 17-month peak at $1,740 an ounce and was last up 1.5 percent at $1,732 an ounce, while spot palladium was last down 0.6 percent at $759 an ounce, having earlier reached its strongest in 17 months at $769.50.
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As well as expectations for a pick-up in demand, both have benefited from anticipation that supply from South Africa and, in palladium's case, Russia will be curtailed this year.
Silver was last nearly flat at almost $32 an ounce.