Gold eases off two-week high as dollar gains on Japan recession

By Frank Tang and Clara Denina

NEW YORK/LONDON (Reuters) - Gold eased from a two-week high hit earlier on Monday as the dollar rose on news that Japan had slipped into recession, and strong technical resistance could also further limit bullion's gains in the near term, analysts said.

The dollar surged to a seven-year peak against the yen after data showed Japan's gross domestic product (GDP) shrank by an annualized 1.6 percent in July-September, after plunging 7.3 percent in the second quarter.

The yen later pared losses but the dollar remained up 0.4 percent against a basket of major currencies. [FRX/]

Also weighing on gold's safe-haven appeal was news U.S. manufacturing output rose modestly in October, despite signs of some slowing in economic growth at the start of the fourth quarter.

Spot gold was down 0.1 percent at $1,187.15 an ounce by 2:22 p.m. EST (1922 GMT) after peaking at $1,193.95, the highest since Oct. 31.

The metal jumped 2.3 percent on Friday, moving above the technical level of $1,180 as short-covering, fund buying and a sudden weakening of the dollar offset better-than-expected U.S. data.

Analysts said any possible rallies in the near term will likely run into formidable technical resistance at its 50-day average near $1,211 an ounce, a level bullion has failed to breach since early August.

"The next technical hurdle for gold will be its 50-day moving average, which has been acting as its stubborn resistance in the last few months," said Adam Sarhan, CEO of Sarhan Capital in New York.

Gold fell to a 4-1/2-year low of $1,131.85 an ounce Nov. 7 due to multi-year highs in the dollar.

The dollar remains in favor as U.S. data has been pointing towards economic recovery, and oil prices continue to fall. Gold is usually seen as a hedge against oil-led inflation.

Economic optimism could dent the appeal of gold by pushing investors towards riskier assets such as equities. A robust economy also could prompt the U.S. Federal Reserve soon to raise interest rates, hurting non-interest-bearing gold.

In gold investment news, hedge fund Paulson & Co maintained its stake in the world's biggest gold-backed exchange-traded fund, SPDR Gold Trust, in the third quarter, but investor George Soros has sharply cut his stake in Barrick Gold Corp and several gold mining company ETFs.

Among other precious metals, platinum fell 1 percent to $1,199.50 an ounce, while palladium rose 0.6 percent to $765.72 an ounce. Silver was down 0.7 percent at $16.14 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by Michael Urquhart, Marguerita Choy and Bernadette Baum)