Gold holds gains above $900

Gold held firm above $900 an ounce on Tuesday after a weaker U.S. dollar and higher oil prices lured investors back into the metal, although an increase in risk appetite and rebounding stock markets checked gains.

Bullion jumped almost 2 percent on Monday in a rally also driven by demand from jewellers in main consumer India and pent-up buying ahead of closely watched results of stress tests on U.S. banks. Other precious metals tracked gold higher.

Spot gold rose 25 cents to $905.60 an ounce, after rallying on Monday to its strongest in nearly a week. It touched a near four-week high of $918.25 last Monday, but has failed to recapture the near record high above $1,000 touched in February.

“I would say that the weaker dollar has supported gold a bit. But I dont think we are out of the woods yet,” said Adrian Koh, analyst at Phillip Futures in Singapore.

“I think today or the next will be key for gold as we are hovering near key downtrend resistance around $910-$915. Unless we are able to hold above these levels, gold could still very much hover around these levels for some time.”

The euro was little changed around $1.3400 after hitting its highest in a month at $1.3439 on trading platform EBS as it tried to extend a 1 percent rise on Monday.

Investors across the markets are focused on this week’s “stress tests” on U.S. banks. U.S. regulators have deemed about 10 of the 19 U.S. banks being stress tested will need to raise more capital, according to a source familiar with official talks.

Officials are scheduled to release the official results on Thursday. Industrial commodity markets have rallied over the past few months on hopes the worst of a global economic recession is past, a mood that has also renewed investor risk appetite, leaving the bullion market pulled in different directions.

While rising stock markets could potentially limit gains in gold, renewed inflation worries fanned in part by oil prices now hovering near a five-month high have encouraged buying. “The odd thing to note is that despite the fact that the equities markets are rallying, gold is going higher as well at the same time,” said a dealer in Singapore.

Bullion has dropped more than 9 percent since spiking to an 11-month high above $1,000 in February on profit taking, lower oil prices and gains in stocks markets, which prompted some investors to shift their money into equities.

REUTERS