LONDON (Oct 14): Gold retreated from four-week highs on Tuesday as lacklustre euro zone data pressured the euro versus the dollar, though the metal was underpinned by fears over global growth, which hurt stocks and other commodities.
Deepening worries over the health of the global economy dragged shares in Europe and Japan lower on Tuesday, while figures showing a slump in oil demand growth knocked Brent crude futures to below $88 a barrel.
Spot gold was down 0.3 percent at $1,232.90 an ounce at 0951 GMT, after reaching a four-week high on Monday. U.S. gold futures for December delivery were up $3 an ounce at $1,233.00.
The euro slid against the dollar after an index of German analyst and investor morale fell below zero for the first time in nearly two years, suggesting Europe's largest economy is reeling from crises abroad and a weak euro zone.
"What we saw last week was that the dollar hit its strongest level to the euro in a couple of years, when gold fell to its lowest price since December 2013," Thorsten Proettel, a commodity analyst at LBBW, said.
"The U.S. dollar to euro rate is a very strong argument for gold or against gold."
Gold, priced in dollars, becomes more expensive for holders of other currencies when the U.S. unit strengthens.
The dollar index, a measure of its strength against a basket of other currencies, rose 0.2 percent.
While the dollar was recovering some of the ground lost on Monday, stock markets continued to retreat on Tuesday, underpinning the metal.
"Gold wasn't interesting for many investors because they could invest in stocks, but right now, the fact that the gold price can be a hedge against stock market turmoil is coming back into the minds of investors," Proettel said.
'MODEST' CHINESE BUYING SEEN
Modest buying was seen overnight in number one gold consumer China, MKS said in a note. Demand for the metal from Chinese buyers was firm last week after they returned from holiday on Wednesday, helping lift prices from last week's lows.
"Demand from (China) has declined a little in lieu of the higher prices and is apparent from the lower premiums seen on the Shanghai Gold Exchange," MKS said. "Today we traded between $2-3 over spot, when last week was closer to $3-4."
With a sell-off in the stock markets, gold-backed exchange-traded funds (ETFs) attracted investors on Monday for the first time in a month after heavy outflows, Reuters data showed.
"(Our) gold exchange-traded products saw their first inflows in a month as dovish Federal Open Market Committee minutes led to dollar weakness, while weak German data renewed interest in the hard defensive assets," said Danny Laidler, head of the ETF Securities' Australia & New Zealand operations.
"Last week's bounce (in gold) could trigger a short-covering rally helping to sustain momentum in the upward trend," he said.
Among other precious metals, silver was flat at $17.45 an ounce, while spot platinum was up 0.2 percent at $1,262.24 an ounce and spot palladium was up 0.8 percent at $784.25 an ounce.