Gold prices steadied near $US950 an ounce on Tuesday after hitting a six-week high the day before, with the US dollar continuing to drive bullion as its drop and better US corporate earnings raised the metal's appeal as an inflation hedge.
Rising oil prices, a rally in stock markets and a weak US dollar have encouraged investors to take more risks, buying high-yielding currencies and commodities including gold.
A brighter outlook for the economy and financial sector has made investors more aware of future inflation risks, while a weaker greenback has made dollar-priced gold cheaper for holders of other currencies.
"Oil, stocks and currencies are all favourable for gold," said Ronald Leung, a director at Lee Cheong Gold Dealers in Hong Kong.
"The economy seems to be stabilising, making people think about inflation," he said.
But gold, while confirming a floor just above $US900, may face a correction in the near term as investors await more clues to see if the economy is really stabilising, he said, adding that stop-loss selling hit around $US950 was weighing on prices.
Spot gold was at $US948.70 per ounce in Asian afternoon trade, barely moved from New York's notional close of $US948.35. On Monday, gold prices rose to a six-week high near $US955.00.
Japanese markets were closed on Monday for a national holiday.
US gold futures for August delivery were also little changed at $US948.90 per ounce, compared to $US948.80 an ounce on the COMEX division of the New York Mercantile Exchange. The August contract hit a session peak on Monday of $US955.40, its loftiest level since June 12.
Masafumi Yamamoto, head of FX strategy Japan at Royal Bank of Scotland, said the euro was likely to strengthen further, with a near-term target around $US1.43.
"Better-than-expected data and earnings are prompting investors to buy back risk assets, including the euro. Persistent talk of diversifying foreign reserves to include non-US dollar assets is also favourable for the euro," Yamamoto said.
Investment flows into gold-backed exchange-traded funds were slow, with holdings at the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, staying unchanged at ,094.54 tonnes as of July 20, after easing slightly on July 17.
