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Gold edges higher as risk aversion returns

Spot gold edged up to $947.40/949.40 an ounce at 1217 GMT from $944.70 late in New York on Thursday. Earlier it touched a low of $935.70 an ounce.

A slowdown in investment demand and lacklustre jewellery buying is still weighing on the metal, however.

“There is scope for further weakness with little sign of much activity from the jewellery market and investment inflows appearing weak,” said Fairfax analyst John Meyer.

Gold is still being bought by risk-averse investors, as uncertainty lingers over the outlook for the financial sector.

Ailing banks in Europe and the United States sank deeper into state control on Friday as governments fed them more cash to subsidise lending and kick start economic activity.

The U.S. government reached an agreement to substantially raise its stake in Citigroup, a person familiar with the matter said.

But a dearth of fresh news to fuel upward momentum has allowed gold to slip more than $60 from the 11-month peak it hit a week ago, analysts said.

“The second quarter is not one of the strongest because demand is relatively weak,” said BNP Paribas analyst Michael Widmer. “On top of that jewellery demand is being cleared off by high prices and price volatility.”

“There is a lot of slack that the investors have to pick up, and given the inflows into ETFs are slowing down a little bit, I am not sure that the investors are picking up the slack at the moment,” he added.

The strong inflows into gold-backed exchange-traded funds that pushed prices above $1,000 an ounce last Friday have since stalled.

Holdings of the world’s largest gold ETF, New York’s SPDR Gold Trust, were static for much of the week, recording only a small 0.31-tonne inflow on Thursday.

“This is not going to be enough to support sentiment in the gold market, which has now corrected by about 6 percent from its recent highs,” said UBS strategist John Reade in a note.

“(It) will probably continue to decline, at least while the performance of equities and other risk assets remains less dreadful than of late,” he added.

Lacklustre

As investment flows stall, the lack of buying in the jewellery sector—which accounted for 58 percent of global demand last year, according to the World Gold Council—is weighing on prices.

Jewellery demand in India, the world’s biggest bullion market, is lacklustre as buyers await lower prices in the midst of the wedding season, with a weak rupee making imported gold expensive.

“There are enquiries but no buyers,” said Pinakin Vyaas, chief manager-treasury with IndusInd Bank in Mumbai. “As the rupee has depreciated so heavily, the costing is getting affected.”

India has not imported any gold in February as recent record prices dampened demand. In the same month last year it imported 23 tonnes of the metal.

Meanwhile gold inventories monitored by the Shanghai Futures Exchange meanwhile fell by 27 kg in the week ended Thursday, to just 6 kg.

Among the external drivers of gold, the dollar rallied, also weighing on the precious metal, while oil prices eased nearly 3 percent after posting sharp gains in the previous session as investors worried about the outlook for demand.

Among other precious metals, spot silver was at $13.17/13.23 an ounce from $13.10.

Spot platinum was little changed at $1,060.50/1,065.50 an ounce from $1,050, while spot palladium was steady at $194.50/198.50 an ounce from $194.