Gold Recovers from Worst Fall in Two Months

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"Physical demand certainly is playing a role. . ."

Gold steadied on Wednesday, a day after its largest selloff in nearly two months, buoyed by consumer demand, which helped offset the potentially negative impact of a stronger dollar following fresh upbeat U.S. data.

The rise in the dollar against a basket of currencies acted as a headwind to gold, which usually profits from weakness in the greenback, yet the drop in price has encouraged some opportunistic buying from jewelers and other consumers of physical metal.

Spot gold XAU= was up 0.3% at $1,383.51 an ounce by 1018 GMT, after posting its biggest daily loss since Nov 12. on Tuesday. U.S. gold GCG1 rose by 0.4% to $1,383.9.

Also adding a degree of support was some investor wariness ahead of a string of eurozone bond auctions, in which Germany and Portugal sell fresh paper, testing market appetite for both core and peripheral debt.

"Physical demand certainly is playing a role, but after such a steep drop you also have some financial investors coming in," said Peter Fertig, a consultant for Quantitative Commodity Research. "That is also leading to a stabilization and not to forget that today is an important day in European debt markets" "As we saw yesterday, there can be significant setbacks, that investors are taking profits and the big risk for gold, from my perspective, are some of the major hedge funds, which are long in physical gold or ETFs, start to take profits," he said, adding he expected gold to maintain its upward trend.

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