Gold gained on Wednesday, within sight of a 1-1/2 month high hit the previous day, with sentiment underpinned by a rise in ETF holdings and persistent worries about the health of the global economy.
Investors shrugged off gains in the Nikkei, which could be short-lived because of the yen's strength against the dollar, while most economic data from the United States pointed to a slowdown in the recovery.
Gold added $2.15 an ounce to $1,225.05 an ounce by 0528 GMT (1:28 a.m. EDT), having hit $1,228.45 on Tuesday, the highest since early July. It was about 3 percent below a record struck in June.
High prices attracted selling of gold scrap from holders in
Indonesia and Hong Kong, but volume was small.
I am also looking at gold to be supported above the $1,220 level. It would be underpinned by strong investment demand as we see from the rise in holdings of the SPDR Gold Trust, said Ong Yi Ling, an investment analyst at Phillip Futures in Singapore. I think it really demonstrates a strong investment interest in gold that will continue, especially if we see people worried about the economic recovery. It really depends on the kind of economic data that is being printed.
The world's largest gold-backed exchange-traded fund, SPDR Gold Trust (GLD.P), said its holdings rose to 1,294.604 tonnes by August 17 from 1,286.699 tonnes on August 12. The holdings hit a record at 1,320.436 tonnes on June 29.
U.S. gold futures for December delivery fell $1.5 to $1,226.8 - off a 1- month high seen on Tuesday.
Fears about a double-dip recession after a flurry of weak economic data and the Fed's downward reassessment of its U.S. outlook lifted gold's appeal as an alternative investment.
In the latest economic data, producer prices increased in July for the first time in four months, helping to allay concerns about deflation, but housing starts rose at a weaker rate than expected and permits fell to their lowest point in more than a year.
The Nikkei edged up 0.4 percent on Wednesday as the Wall Street gained after two U.S. retailers reported better-than-expected earnings, but strong yen capped gains. .T .N
The yen rose, with traders citing yen-buying by Japanese players, while the Canadian dollar held gains made on news of a huge takeover bid by global miner BHP Billiton for Canada's Potash Corp. The euro dipped 0.4 percent to $1.2838.
The ETF offers good support for the market for the time being. I would say there's still light buying from India. There's a bit of selling of scrap after the price hits a new high but investors still want to buy some gold, said a dealer in Hong Kong.
Gold demand in top consumer India is picking up for the busy festival season, starting with Raksha Bandhan on August 24, and extending till Dhanteras in November, the single biggest gold-buying day. A firmer rupee is also expected to offset gains in global gold prices.