Gold up on physical buying but seen vulnerable

Gold up on physical buying but seen vulnerable

NEW YORK/LONDON - Gold rose in choppy trade on Wednesday as the two-year low it hit the previous session triggered Asian physical buying, but the market had trouble holding on to gains and is seen vulnerable to further sell-offs.

Bullion was sharply off its earlier high as economic worries roiled global markets. Sharp losses in US equities and industrial commodities led by copper and crude oil continued to weigh on gold, a traditional inflation hedge.

Sentiment among gold investors remains shaken as bullion's historic selloff prompted markets to assess the damage to the metal's status as safe haven.

There were signs of improving physical demand from Asia, especially India, historically the world's largest bullion consumer. In addition, coin investors sought out potential bargains at sharply lower prices after gold's sell-off.

"We are seeing a lot of retail buying and not a lot of commercial and certainly not fund buying in this particular rally back," said Frank McGhee, head precious metals trader of Integrated Brokerage Services LLC.

"Investors are still very wary about economic slowdown and deflation," McGhee said.

Spot gold was up 0.5 per cent at US$1,373.96 (S$1,700) an ounce by 2:04 PM EDT (1804 GMT), having tumbled to its lowest since January 2011 at US$1,321.35 on Tuesday.

The market fell by a combined US$225 on Friday and Monday, which compares with a total trading range of US$260 in 2012.

It is down about 18 per cent so far this year, at risk of posting its first annual loss after 12 consecutive years of gains.

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