Gold eases as dollar recovers lost ground

London Gold eased towards $1,670 (Dh6,132) an ounce Friday, pausing in its biggest one-week rally since late February, as the dollar recovered lost ground against the euro on concerns about Spain's financial health and after Chinese growth data missed forecasts. Spot gold was down 0.1 per cent at $1,672.80 an ounce at 1152 GMT, while US gold futures for June delivery fell $6.90 an ounce to $1,673.70. The metal was still on track to rise 2.5 per cent last week after a soft US jobs report last Friday stoked expectations for new quantitative easing measures. Ultra-loose US monetary policy was a key driver of record gold prices last year. However, a rebound in the dollar yesterday took the wind out of the precious metal's sails. "There has been a steady trickle of positive new stories that seem to have picked gold's spirits up a bit and moved it into a higher range, but it is still a relatively muted performance," Sharps Pixley chief executive Ross Norman said. "There has been steady US dollar strength, and I think that will be an ongoing story throughout the year," he said. "Investment demand remains pretty robust, but the strength of the US dollar in an election year is likely to continue to be a drag on runaway gold prices." Gold is expected to remain closely tied to the dollar. A stronger dollar tends to weigh on gold, as it makes dollar-priced commodities more expensive for other currency holders, and curbs the metal's appeal as an alternative asset. "Gold will in our view continue to trade alongside the broader market today and against the US currency, as attention turns to US CPI estimates this afternoon," VTB Capital in a note. Gold is on track to rise nearly 7 per cent this year but has struggled to gain momentum after a strong showing in January as expectations for a further round on monetary easing fluctuate. Swiss bank UBS said in a note that if gold reverts to the safe-haven trading pattern it followed for much of last year, light speculative positioning, a run of softer than expected US data and troubles in the Eurozone may represent the ingredients for a fresh rally. "Options activity this week suggests something is brewing," UBS said. "There has been a good deal of interest in upside options, particularly for $1,800 June calls, with gold's safe haven performance on Tuesday the likely catalyst.