Gold regains strength on dollar

Singapore - Gold rebounded on Thursday as the US dollar weakened against other currencies but gains could are seen limited after holdings in the world's largest gold-backed ETF dropped to their weakest since early June.

While jewellers were happy to buy at lower levels, uncertainties in the outlook for the US economy and poor technicals weighed on sentiment. Other precious metals tracked bullion higher.

Spot gold added $2.80 an ounce to $1 165.35 an ounce after falling as low as $1 156.90 on Wednesday, its weakest since late April. Bullion hovered below the 50-day and 100-day moving averages.

"There's a lot of safe-haven positioning being unwound right now in the gold market. Potentially, it could unwind down $1 130 - $1 120 pretty quickly," said Mark Pervan, senior commodities analyst at ANZ in Melbourne.

"A lot of the gold gains in the last six months were driven by euro weakness, and that was really safe haven buying. The trend doesn't look good. Potentially, it could move down towards the low $1 100s," said Pervan, referring to levels last seen in April.

The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings fell to 1 282.279 tonnes by July 28 from 1 300.829 on July 27 - their lowest since early June. The holdings hit a record at 1 320.436 tonnes on June 29.

Cash gold was nearly 8% below a lifetime high around $1 264 struck in June, when investors poured money into bullion on worries the eurozone debt crisis would spread. US gold futures for August delivery rose $4.5 $1 164.9 an ounce.

The Nikkei fell on Thursday as US stocks slipped after weak durable goods figures and a downbeat assessment of the economy from the Fed's Beige Book kept the benchmark S&P 500 trapped below its 200-day moving average.

The US dollar slipped towards three-month lows against a basket of currencies on Thursday as investors cut their positions due to fresh evidence of a patchy recovery in the US.

"We're seeing a bit of short covering, so that's why the market has stabilised at current levels. A drop in ETF may suggests investors think the eurozone is getting better," said a dealer in Hong Kong.

"Gold looks slightly bearish, although we see a mixture of buying from jewellers and other physical buyers."

The European Central Bank will likely wait until late 2011 before hiking interest rates, according to a Reuters poll of over 70 economists who stayed cautious in July despite some encouraging economic data.

US crude futures were steady around $77 a barrel on Thursday after falling for a second day on a surprise build in crude oil inventories.

  - Reuters