April 21, 2009 / 4:42 AM / 11 years ago

PRECIOUS-Gold extends gains, but capped at $890/oz

* Gold edges up on light physical buying in Asia

* Capped at $890, with traders eyeing Dow, dollar

By Risa Maeda

TOKYO, April 21 (Reuters) - Gold edged up on Tuesday, helped by light physical buying after a sharp rise a day earlier when worries over the health of the U.S. banking sector dragged down equities and enhanced gold’s safe-haven appeal.

But it was capped at around $890 per ounce as traders were unsure if the upward momentum led by short-term investors was sustainable, preferring to see how European and U.S. equities performed before taking bigger positions.

“The market wants to take a look at the Dow Jones tonight and Europe’s stock markets as well,” said Dick Poon, a division manager of precious metals at Heraeus Ltd in Hong Kong.

Traders also said a further rise in the dollar against the euro EUR= could undermine gold prices. A higher dollar makes dollar-priced bullion more expensive for non-U.S. investors.

Spot gold XAU= stood at $886.0 per ounce by 0331 GMT, up 0.2 percent from the notional close in New York of $884.15.

Gold rallied almost 2 percent on Monday, after the Dow Jones industrial average .DJI sank 3.6 percent as Bank of America (BAC.N) reported a jump in non-performing assets, underscoring troubles in the banking sector. [ID:nN20380236]

Holdings at the world’s largest gold-backed exchange-traded fund, New York’s SPDR Gold Trust (GLD), remained unchanged on Monday. [GOL/SPDR]

But the holdings fell 21.7 tonnes, or nearly 2 percent, on Thursday and Friday, when the Dow rallied to two-month highs.

Naomi Suzuki, a senior analyst at SC Asset Management Co, said the two-day sell-off was double India’s gold imports in the first 15 days of April, which had been sharply up from zero in March.

“The only reason that gold fell was the massive sell-off in the ETF, if it weren’t for that the market would have gained ground,” Suzuki said, but added that renewed investor risk aversion this week was supporting gold.

“When stocks are down and market volatility is up like it is now, it’s natural for investors to grow cautious about selling,” she said.

Investment demand had helped send gold to above $1,000 an ounce in late February, after which bullion fell 14 percent to a three-month low of $864 marked late last week.

But gold’s failure to break above $900 recently illustrates fading demand from investors as well as from industry and jewellery buyers.

Among other precious metals, platinum and palladium stayed under pressure from renewed concerns about the banking sector and its impact on the global economy, traders said.

Spot platinum XPT= was down almost 1 percent at $1,149 an ounce. Spot palladium XPD= was at $220 an ounce, down 2.4 percent from New York’s notional close. Precious metals prices at 0329 GMT Metal Last Change Pct chg YTD pct chg Turnover Spot Gold 886.35 2.20 +0.25 6.44 Spot Silver 12.14 0.10 +0.83 -17.81 Spot Platinum 1146.00 -13.50 -1.16 -24.61 Spot Palladium 220.00 -5.50 -2.44 -40.22 TOCOM Gold 2805.00 22.00 +0.79 -8.33 14252 TOCOM Platinum 3640.00 -113.00 -3.01 -31.82 15760 TOCOM Silver 381.10 0.50 +0.13 -29.56 192 TOCOM Palladium 704.00 -36.00 -4.86 -47.89 517 Euro/Dollar 1.2939 Dollar/Yen 98.24 TOCOM prices in yen per gram, except TOCOM silver which is priced in yen per 10 grams. Spot prices in $ per ounce. (Additional reporting by Miho Yoshikawa; Editing by Clarence Fernandez)

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