Gold holds up as dollar recovery fizzles

London: Gold prices softened but held well above $1,050 an ounce in Europe yesterday, awaiting direction from the foreign exchange markets, as the previous day's recovery in the dollar index petered out.

With physical demand for the metal from jewellers and investors in exchange-traded funds still lacklustre, gold is at the mercy of the currency markets, traders said.

Spot gold was bid at $1,053.15 an ounce at 0933 GMT against $1,054.00 late in New York on Tuesday. US gold futures for December delivery on the Comex division of the New York Mercantile Exchange eased $4.40 to $1,054.20 an ounce.

Prices have been tracking the euro-dollar exchange rate, with gold hitting record highs of $1,070.40 last week as the dollar struck its lowest in more than a year versus the single currency.

"Gold does not seem to have a mind of its own," said Afshin Nabavi, head of trading at MKS Finance in Geneva. "It all depends on the euro."

"My guess today would be that $1,050 may remain as a good support with $1,068-1,070 as resistance," he said. "A break above $1,075 should open the path for $1,100."

Despite the gains in gold prices over the last month, relatively little scrap is coming back onto the market, compared with the record levels seen earlier this year when gold rose above $1,000 an ounce, he said. The dollar softened against the euro yesterday and the dollar index edged lower as a brief recovery from 14-month lows versus the single currency fizzled out.

Traders are closely watching the progress of equity markets.