Gold firms, euro zone concerns remain

Gold prices climbed on Tuesday after two straight sessions of losses, supported by a steady euro ahead of key bond auctions in the euro zone this week while sentiment remained fickle over the region's fiscal prospects.

Spot gold has been moving in a tight range of less than $20 above $1,600 for three days after the new year euphoria quickly faded and worries about the euro zone debt crisis resurfaced.

The year-end credit crunch has eased to some extent, which helped boost gold's appeal to investors seeking relatively safe bets as uncertainty about the euro zone still persists in the global market.

"The difficulty at the year-end to fund precious metals trades has certainly faded a bit and it's cheaper to trade," said a Singapore-based trader.

Precious metals may also appeal to fund managers, who are returning in the new year to a market full of uncertainty and short of promising investment targets, he added.

Spot gold rose 0.4% to $1,616.59 an ounce by 0753 GMT, after dropping for two sessions straight.

US gold gained nearly 1% to an intra-day high of $1,624 an ounce, before easing to $1,618.30.

Technical analysis suggested that spot gold is trapped between $1,604 and $1,623 an ounce during the day, said Reuters market analyst Wang Tao.

After Germany and France struck a gloomy tone on Greece on Monday, market participants are eyeing bond auctions by Italy and Spain later this week, seen as a test on the willingness of investors to plough more money into the debt-laden euro zone nations.

The single currency held steady and Asian shares gained, while worries about the euro zone debt crisis kept investors cautious about taking riskier positions.

The annual rebalancing of commodity indices, including DJ-UBS and S&P GSCI, was slated to take place this week and could put some pressure on gold, one of the outperformers of the commodity complex in 2011, analysts said.

Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, stood unchanged for the tenth straight session at 1,254.57 tonnes on January 9.

Asia physical demand lukewarm

Physical demand ahead of the Lunar New Year, which falls on January 23 this year, has so far been sluggish, said bullion dealers.

"There is some buying, but we haven't seen a substantial pickup in physical demand before the Lunar New Year," said Dick Poon, manager of precious metals at Heraeus in Hong Kong.

"People are worried about the euro zone, and concerned if China can maintain its growth."

As physical supply improves after refineries returned from the new year break, premiums on gold bars in Hong Kong eased to $1-$1.50 an ounce above spot prices, from $1.50-$2.50 last week, Poon added.

Spot palladium rebounded 1.4% to $621.72 after sinking to a two-week low of $604.99 in the previous session.