Gold edges up from four-year low as dollar rally pauses

By Jan Harvey

LONDON (Reuters) - Gold edged higher on Tuesday, recovering from last week's four-year low, as the dollar's retreat from multi-year highs against a currency basket relieved some downward pressure on the metal.

A lack of robust buying from the major physical gold markets of China and India and weak technicals underscored expectations of further declines, however, analysts said.

Bullion broke below a key chart level of around $1,180 an ounce on Friday after the Bank of Japan expanded its stimulus programme in a surprise move, lending strength to the dollar.

The break prompted a further sell-off that took gold all the way to $1,161.25, its lowest since July 2010.

Spot gold was up 0.3 percent at $1,168.95 an ounce at 1007 GMT, while U.S. gold futures for December delivery were down $1.20 an ounce at $1,168.60.

"Near term, the down move has been driven by technicals stemming from the sharp dollar move higher," Saxo Bank analyst Ole Hansen said. "The sentiment is very negative again, which probably means that a move above $1,200 is needed to turn it back to neutral and to trigger short-covering."

"The physical markets have so far not stepped up to the plate, and we probably need to see a pick-up in demand before support can be established. This is what happened when we reached these levels last June."

The dollar took a breather versus the yen and the euro on Tuesday, with the dollar index down 0.2 percent, after a week of gains drove it to its highest levels since 2010 and put a longer-term rally back on track following a turbulent October. [FRX/]

Strength in the dollar tends to push down gold, which is priced in the unit, as it becomes more expensive for holders of other currencies.

Attention is now shifting to U.S. data due later in the week due to its potential impact on the dollar and expectations for monetary policy. That includes Friday's non-farm payrolls report, a leading barometer of U.S. economic health.

CHART SUPPORT

From a technical perspective, analysts flag up a band of chart support for gold between $1,155 an ounce, the 61.8 percent retracement of gold's rally from its 2008 lows to its 2011 record high at $1,920.30, and $1,180.

"While the metal closes below the ($1,182) level, the technical risk grows for a liquidation move below $1,155," ScotiaMocatta analysts said in a note. "Only a close back above $1,200 would shift our view from bearish to neutral."

Even with gold prices dropping to near four-year lows, buyers across Asia have failed to show enthusiasm for the cheaper prices, preferring instead to wait on the sidelines.

When gold prices are in a slump, Chinese buyers, eyeing a bargain, traditionally move in and stop the decline. But that does not seem to be happening this time around.

In the biggest consumer of gold, local premiums - an indicator of demand - failed to pick up in any big way.

Prices on the Shanghai Gold Exchange had fallen to a discount to the global price on Monday but recovered to a premium of $1-$2 an ounce on Tuesday. They are still far short of the $50-plus premiums seen last year.

Elsewhere, the top gold exchange-traded fund, SPDR Gold Shares, posted a very small inflow of 0.01 tonne on Monday - its first uptick since Oct. 16. Holdings are still close to the six-year low of 741 tonnes they hit last week.

Among other precious metals, silver was down 0.4 percent at $16.06 an ounce, having slid to a 4-1/2 year low at $15.72 an ounce on Monday.

Spot platinum was down 0.8 percent at $1,223.75 an ounce, while spot palladium was down 0.3 percent at $797 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; editing by Jane Baird)