Tokyo - Gold held steady on Friday near a two-month high, with investors turning to the safe-haven asset as the dollar remained weak and as US data on jobless claims and business conditions dented hopes for a quick return to growth.
Gold has risen about 2.6% this week, and traders said its upside was likely to become more limited as current prices prompt investors to take profit while wary investors halt investment in gold-backed exchange-traded funds.
Spot gold was steady at $952.65 per ounce at 02:42 GMT, little changed from New York's notional close of $953.40. Gold rose as high as $955.95 on Thursday, its highest since March 23. In March, gold prices rose as high as $966.
US gold futures for June delivery edged up 0.2% to $953.40 per ounce from $951.20 on the COMEX division of the New York Mercantile Exchange on Thursday.
Speculators have been boosting their holdings in US gold futures, another reason the market may be getting a bit stretched given that buying has been driven by external factors such as the currency and stocks, said a senior dealer at a Japanese trading house.
"The market is now at a level where technicals will set the direction, with traders watching if stop-loss orders above the highs for March will be hit," the dealer said, saying trend-following commodity trading advisers (CTAs) have been placing such orders at various levels.
The dealer said while players may wait to take action until the June gold futures contract rolls over next month, the dollar's further slide or sharp stock losses could hit the technical triggers.
Gold's relative strength index (RSI), a measure of whether the metal is overbought or oversold, stood at 76 at Thursday's close. The market views an RSI of 30 or less as oversold and 70 or more as overbought.
The Obama administration is preparing to steer General Motors into bankruptcy next week, The Washington Post reported on Thursday, citing sources familiar with the discussions.
Traders said the US automakers' bankruptcy, a factor which would normally spur more safe-haven buying of gold, was likely to have been factored in by market players and could even trigger profit taking given gold's current high price.
They also said gold had been weighed down by selling from India, the world's largest gold consumer, and Vietnam, when prices jumped.
But supportive of gold was data on Thursday suggesting that the US economic recovery, when it arrives, will be a long slog, with a key factory index showing only marginally less weakness and unemployment tipped to hit double-digit levels. Markets were also slammed by suggestions of the unthinkable - that the United States could lose its coveted triple-A credit rating.
Also buoying bullion was the dollar, which fell to its weakest in almost five years against a basket of currencies as concerns about growing US government debt prompted investors to sell dollar assets from stocks to bonds.
Cash flowing into the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, has paused since rising on May 13 for the first time since they began declining after hitting a record high on April 9. Its holdings were unchanged at 1 105.62 tonnes on May 21.
- Reuters