Gold languishes near two-week low as economic recovery hopes weigh

SINGAPORE Mon Jan 28, 2013 1:23pm IST

A woman looks at gold jewellery displayed at a shop in Amman's gold market April 25, 2011. REUTERS/Ali Jarekji/Files

A woman looks at gold jewellery displayed at a shop in Amman's gold market April 25, 2011.

Credit: Reuters/Ali Jarekji/Files

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SINGAPORE (Reuters) - Gold edged up on Monday but struggled to break away from a two-week low hit in the previous session, with a brighter global economic outlook dampening the metal's appeal as a safe haven.

Platinum group metals fared better, with spot palladium hitting its highest in more than 16 months. Platinum metals have industrial applications and benefit from an improved economic mood.

Signs that the euro zone crisis is stabilising and the U.S. recovery is gaining traction drove investors to the higher-yielding equity market, sending Wall Street up for the eighth straight day on Friday.

"The weakness in gold may continue in the short run as weak technicals and upbeat data from key economies put pressure on prices," said Li Ning, an analyst at Shanghai CIFCO Futures.

"Investors would rather move their money into equities or bulk commodities from safe-haven assets."

Spot gold inched up 0.1 percent to $1,660.74 an ounce by 0704 GMT, after dropping 1.5 percent last week -- its sharpest weekly loss n a month. It fell to a two-week low of $1,655.39 in the previous session.

U.S. gold was up 0.2 percent to $1,660.40.

Technical analysis suggested that spot gold could break below support at $1,656 and fall further to $1,647 during the day, said Reuters market analyst Wang Tao.

Investors will closely watch the Federal Reserve's policy meeting this week as well as a string of data on employment, economic growth and consumption, to gauge the pace of recovery in the world's largest economy.

In the latest gold holdings data from the International Monetary Fund, Iraq cut its gold holdings by a quarter to 29.9 tonnes in November, reversing some of the country's recent efforts to bolster its reserves.

Physical buying ticked up in Asia, but was lacklustre compared to the past few years when buying typically surged ahead of the Lunar New Year festival, including in China, which is vying with India to be the world's top gold consumer.

"Normally the demand in the region is strong at this time of the year, but we are not seeing (that) this year," said Dick Poon, general manager of Heraeus Precious Metals Hong Kong.

Hedge funds and money managers raised their net long bets in U.S. futures and options of gold and silver in the week ended January 22, data from the U.S. Commodity Futures Trading Commission showed.

Net length in platinum rose to a record high of 38,097 contracts, and net length in palladium climbed for a second straight week to an all-time high of 18,972 contracts, CFTC data also showed.

Spot palladium rose to $741.75 an ounce, its highest since September, 2011, before easing slightly to $739.80, up nearly 7 percent from the end of 2012.

Spot platinum gained 0.4 percent to $1,687.81, posting a rise of nearly 10 percent so far this year.

(Editing by Tom Hogue and Muralikumar Anantharaman)

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