Gold: rebounding but does QE put a cap in place?

LONDON (Reuters) – Gold prices rose on Thursday as its fall to a near three-month low the previous day tempted some buyers back, but gains were capped by a rise in the dollar and fading hopes for more U.S. monetary stimulus.

Spot gold was up 0.6 percent at $1,628.34 an ounce at 1420 GMT. It briefly broke back above $1,630 an ounce as a drop in jobless claims pulled the dollar from its highs and stocks from their lows, but was unable to sustain the move.

Commerzbank analyst Daniel Briesemann said a countermove after the sharp price fall of recent days was to be expected, but said he expects prices to trade lower, possibly below $1,600 an ounce, after the current correction has run its course.

“Gold is highly correlated to equities and commodities at the moment and as long as the equity markets and the commodity markets are going down, so is gold,” he said.

European shares hit a two-month low on Thursday and more losses are expected as worries build over Spain’s debt burden and the possibility of more trouble in weaker euro zone states. safe-haven German bunds rose.

Investors will be looking to the March nonfarm payrolls report from the United States on Friday for further clues on the health of the labour market.

A spate of better-than-expected U.S. economic data has curbed investor appetite for gold by raising expectations that quantitative easing will prove unnecessary, especially after Fed minutes on Tuesday suggested more monetary stimulus was unlikely.

Ultra-loose monetary policy, which keeps real interest rates and consequently the opportunity cost of holding gold low, helped push the metal to record highs in 2011.