* Gold to drop to $1,554.49 -technicals * Coming Up: U.S. Dallas Fed manufacturing index; 1530 GMT (Updates prices, adds comments on COMEX) By Lewa Pardomuan SINGAPORE, Feb 25 (Reuters) - Gold recouped early losses on Monday on firmer equities and after last week's drop to a 7-month low spurred physical buying in Asia, but investors were cautious ahead of the outcome of an unpredictable election in Italy and its impact on the euro zone. Investors shrugged off slower growth in China's manufacturing sector in February, which is unlikely to change expectations the world's second-largest economy is enjoying a gentle recovery. Gold rose $5.04 an ounce to $1,585.34 by 0724 GMT after posting modest gains on Friday. It hit a seven-month low of $1,554.49 on Thursday after minutes from the U.S. Federal Reserve's latest policy meeting triggered worries the central bank might stop or slow its bond buying programme. "After the drop, hopefully the worst is over for gold, although the support is still at $1,527. I believe (after) a break above $1,585, you might see a trend that it should test $1,600," said Brian Lan, managing director of GoldSilver Central Pte Ltd in Singapore. The euro bounced from a six-week low around $1.3145, but further upside may be limited as investors eye the vote in Italy, where exit polls will be published shortly after 1400 GMT on Monday. An unstable government in Italy could cause another crisis of confidence in the European Union's single currency. Gold struck a record of around $1,920 in September 2011, when a worsening debt crisis in Europe ignited a buying rush. "We've seen buying from China, and we can say it's from the investment side and the jewellery sector. People in Asia are still buying gold," said a physical dealer in Hong Kong. "Premiums are still steady at $1.70. There could be some buying from India too," said the dealer, referring to premiums for gold bars against the spot London prices.
The wedding and festival season are underway in India, the world's top gold consumer, with jewellery a key part of celebrations. U.S. gold for April was at $,1585.30 an ounce, up $12.50. It had dropped to $1,554.30 on Thursday, its weakest since June. "COMEX is catching up with spot gold and the market may be seeing some support from South Korean leader's comments on North Korea's nuclear programme," said a dealer in Singapore. South Korea's new president Park Geun-hye urged North Korea on Monday to abandon its nuclear ambitions, and to stop wasting its scarce resources on arms, less than two weeks after the country carried out its third nuclear test. In other markets, shares edged higher on Monday, while the yen hit a 33-month on speculation the Japanese government is set to name two strong supporters of aggressive monetary easing to top posts at the central bank. The weak yen lifted gold contracts on the Tokyo Commodity Exchange. "We have downgraded our average 2013 gold prices by 6.7 percent to $1,690 an ounce, from an expected slowdown in investment demand for gold in the West and a move towards more growth-oriented assets," said ANZ in a report. "While we have downgraded our near-term views, gold prices should accelerate in the second half on improving demand from India and China." Hedge funds and other big speculators cut their bullish bets on U.S. commodities by the most in nearly 10 months just before oil and metals prices tumbled this week on rumours a commodities fund was dumping positions, trade data showed on Friday. Russia and Turkey both raised gold holdings for a second consecutive month in January, data from the International Monetary Fund showed, highlighting central banks' interest in diversifying part of their reserves into bullion. Precious metals prices 0724 GMT Metal Last Change Pct chg YTD pct chg Volume Spot Gold 1585.34 5.04 +0.32 -5.33 Spot Silver 28.80 0.11 +0.38 -4.89 Spot Platinum 1609.74 4.50 +0.28 4.87 Spot Palladium 737.50 1.50 +0.20 6.58 COMEX GOLD APR3 1585.30 12.50 +0.79 -5.40 27786 COMEX SILVER MAR3 28.78 0.32 +1.12 -4.80 6101 Euro/Dollar 1.3219 Dollar/Yen 94.23 COMEX gold and silver contracts show the most active months (Editing by Tom Hogue)
Happy demi-anniversary, stock market rally. Will the honeymoon ever end?