Gold barely moves after 1% drop; stuck in range

Gold hardly moved on Tuesday as early bargain hunting subsided, and dealers said a weaker US dollar was probably needed to help the metal break free from its current range.

Speculators, who have built up positions in New York on worries about Greece's ability to repay its debt, may unwind holdings further but gold could find support at the current levels.       

Dealers shrugged off news that China would be prudent in buying gold as a component of official reserves, which was in line with market thinking the country would not buy bullion in the open market, as it costs less to buy from domestic mines.  

Spot gold hit an intraday high of $1,124.30 an ounce and was at $1,122.20 by 0632 GMT, down 65 cents from New York's notional close on Monday, when it fell 1 percent. Bullion was also around 1 percent below a 6-12-week high near $1,150 an ounce hit in early March.                                           

Safe-haven buying ignited by a sovereign debt crisis in Greece had pushed up prices as the inverse relation between gold and the dollar began to weaken but dealers said bullion could still turn to currencies for direction.                                           

"It's still trading above the 50- and 100-day moving average, which is encouraging. If they can stay above $1,110, you know there's a chance it could move back up towards $1,150," said Mark Pervan, senior commodities analyst at ANZ in Melbourne. 

"The gold market has been more influenced by safe haven rather than currency issues. But if we swing back to currency issues, then it will need a weaker dollar to trade through $1,150 again," said Pervan, referring to a January high.                                          

The euro dropped against the dollar to $1.3615, but it was still well off an over nine-month low of $1.3433 struck last week. The euro struggled after Greek Prime Minister George Papandreou warned on Monday that if the Greek crisis worsened it could lead to a new global financial meltdown.                                           

Platinum hit an intraday low around $1,580 an ounce before bouncing and hitting a high of $1,625 -- its strongest since late January. Palladium slipped but held near its recent highs on hopes of steady demand from autocatalysts following robust sales figures in major gasoline markets in China and the United States.                                            

The US gold futures for April delivery was little changed at $1,123.3 an ounce, having ended 1 percent lower on technical selling. The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings stood at 1,116.120 tonnes as of March 8, unchanged from the previous business day.

Yi Gang, head of China's State Administration of Foreign Exchange, said the country would face serious constraints if it wanted to increase its gold holdings because the acquisitions would push up the price of the precious metal.  

The market has long been rife with speculation that China will seek to diversify its foreign exchange reserves in part by buying more gold abroad.

"I think the market wants the signs from the currency markets whether the dollar is going north or south," said a dealer in Hong Kong.                                           

"The market discounts the China story. It's an old story. I don't think China will buy gold in the open market. They will buy gold from their own mines," he added.

China's gold output jumped 11.34 percent to a record of 313.98 tonnes in 2009, the China Gold Association has said, securing the country's position as the world's largest producer of the yellow metal.