Gold bounces after 2 pct drop,US dollar eyed

SINGAPORE (Reuters) - Gold regained some strength on Thursday after a drop in the previous session attracted bargain hunters, but a strong dollar and fading expectations of more monetary easing in the United States made the metal vulnerable to more selling.

The physical market lacked activity as jewellers looked for a bargain, while bullion holders shifted their money into equities after strong U.S. economic data and accommodative monetary policies by global central banks sent investors back into risk assets.

Spot gold added $4.69 an ounce to $1,646.79 an ounce by 0339 GMT. Gold extended losses and fell more than 2 percent on Wednesday -- a day after the Federal Reserve offered no clues on further easing.

"Sentiment is of course very bad, I can say. After slipping below $1,650, it may go down further to $1,600," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong, adding that a rebound will be capped at $1,675 to $1,680.

"Safe-haven (appeal) is forgotten for the time being. The demand is sluggish because of the strong dollar. Speculators dumped their gold."

Gold has fallen around 8 percent since late February as funds appeared to have closed out of their bullish gold bets on worries the Fed has no intention to embark on another round of major asset purchases to keep interest rates and borrowing costs low.

Bullion rose to a record of around $1,920 last September on fears the euro debt crisis could stall global growth.

U.S. April gold rose $4.90 to $1,647.80 an ounce.

The dollar rallied to a 11-month high against the yen and a one-month peak against the euro on Thursday on growing optimism on the U.S. economic recovery and subsequent rises in U.S. bond yields.

In theory, a firmer dollar hurt dollar-based commodities such as gold, as well as industrial metals such as copper, which is weighed by concerns about slowing demand from China, the world's largest consumer of the metal.

China's Premier Wen Jiabao said on Wednesday that China must embrace slower growth and bolder political reform to keep its economy from faltering and to spread wealth more evenly.

But a Reuters polls found developed economies will pick up steam this year thanks to an array of ultra-loose monetary policies from major central banks and amid new signs of progress in the euro zone's debt crisis.

In the physical market, a lack of buying from jewellers despite a recent drop in prices rattled the nerves of some physical dealers.

"I guess the dynamics have changed. Customers will only take gold if there's a need to. Otherwise, there's no commitment," said a dealer in Singapore. "I have not been here in the business for 20 years yet, but I feel the change."

In the equity market, the Nikkei rose on Thursday, extending the previous session's rally that helped the index close above 10,000 for the first time in seven months, as exporters advanced on the back of a weaker yen.

Source: http://news.yahoo.com/gold-bounces-2-pct-drop-us-dollar-eyed-062332408.html

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