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Sydney - Gold steadied in Asia on Monday after early selling on low inflation signals gave way to fresh concerns over Hungary's ability to pay its debts prompted safe haven buying.
But longer term, the firmness in bullion is not supported by technical analysis, which suggests gold is ready to ease further to lows last seen in late May of $1 175 per ounce.
Spot gold at 03:30 GMT was almost flat at $1 193.05 an ounce versus Friday's nominal close after prices ended last week almost 2% lower.
Gold has found some crisis-based support on news that the IMF and European Union suspended a review of Hungary's funding programme at the weekend, which has ignited fresh eurozone jitters, according to bullion dealers.
This means the country will not have access to remaining funds in its $25.1bn loan package set up in 2008 until the review is concluded.
Trading volumes were reduced by a market holiday in Japan.
Countering sentiment over Hungary's financial outlook are signs of the United States economy heading into deflation based on cautionary Federal Reserve minutes released last week.
"If it becomes clear that deflation is a strong possibility, that will be negative for gold," a metals dealer in Sydney said.
Federal Reserve Chairperson Ben Bernanke testimony before the Senate Banking Committee on Wednesday will be closely watched for reaction in currency and bullion markets, according to dealers.
If Bernanke suggests that the Fed will resume quantitive easing measures the greenback is likely come under more pressure, possibly offering bullion a lift to gold, they said.
But a balanced outlook suggesting the current weakness is likely to be temporary should provide some support for dollar and likewise is seen weighing down bullion prices.
Gold usually moves inversely to the dollar and in line with the euro. When the dollar rises it makes gold for holders of other currencies more expensive and reduces its demand.
The euro stepped back after touching a two-month high versus a broadly weaker dollar on Friday as investors bet that gains supported by rising European money market rates were overdone.
US gold futures for August delivery climbed 0.4% to $1 193.00 an ounce against Friday's settlement price of $1 188.20.
Later in the week, bullion markets are awaiting the results of stress tests on European banks due out on Friday as an indicator of wider risk levels in eurozone economies.
- AFP