U.S. gold added $15.8 an ounce to $1,631,8 on Wednesday

U.S. gold futures gained 1 percent to above $1,630 an ounce on Wednesday, driven by a return to bargain hunting after prices dropped the previous day, while a rebound in the euro against the U.S. dollar also spurred buying.

But another round of selling in equities could cap gains, as bullion’s erratic behavior in recent weeks suggested the metal was unsure about its role in the financial market despite lingering worries about the debt crisis in Europe.

Gold rallied to a lifetime high around $1,920 in early September after the euro tumbled on doubts over Europe’s ability to solve the crisis, but it then plunged to a two-month low around $1,534 last week as investors cashed in the metal to cover losses in equities.

“It can’t make up its mind mainly because investors, the people who are actually doing the buying and selling, haven’t also made up their minds whether gold is treated as a safe haven and, therefore, should follow that status,” said Song Seng Wun, a regional economist at CIMB Research in Singapore.

“At this moment, it looks like some are still debating whether safe haven, in the most current environment, is just essentially the U.S. dollar and (whether) U.S. treasuries include or exclude gold.”

U.S. gold added $15.8 an ounce to $1,631,8 by 0303 GMT, after rising as high as $1,636.50 ounce. Spot gold rose $9.43 an ounce to $1,629.35 an ounce.

The Nikkei fell on Wednesday, losing its grip on early gains as bank shares slipped, while the euro fought to hold gains after rising on news euro zone ministers were considering ring fencing the region’s banking sector from the sovereign debt crisis. .T <USD/>

European finance ministers agreed on Tuesday to safeguard their banks as doubts grew about whether a planned second bailout package for debt-laden Greece would go ahead.

Light physical buying kept premiums steady at $2 an ounce to spot London prices in Singapore, the highest since February. Markets in Hong Kong were closed for a holiday.

“I think supply is going to be tight until the end of October. It’s difficult to generate enough stockswithout any selling back from the market,” said a physical dealer in Singapore.

“Well, I think if the price stays at this level, then the demand will be around until the end of this year.”

Physical demand has picked up across Asia after recent declines in gold prices, leading to tight supply of gold bars in Singapore and Hong Kong.

In other markets, copper rose more than 1 percent after comments by the U.S. Federal Reserve that it was ready to take more steps to help a struggling U.S. economy helped prices recover from a five-day slide. <MET/L>

Brent crude rebounded above $102 as tighter U.S. crude stocks and promises by the Fed to launch new stimulus measures if necessary helped halt a sharp three-day sell-off.

Source: Reuters

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