Gold holds near $1,750/oz

(Reuters) - Gold held near $1,750 an ounce on Wednesday, underpinned by gains in the euro after Moody's rating agency affirmed Spain's investment grade status, fuelling hopes that Madrid will soon apply for formal aid from its European Union partners.

The euro hit a one-month high and the dollar index .DXY dropped to its lowest in nearly two weeks following the Moody's decision. A weaker greenback makes dollar-priced commodities more attractive for buyers holding other currencies.

But investors' confidence in gold's ability to extend gains was muted after its drop to a one-month low on Monday, following forecast-beating U.S. data that called into question the extent of the Federal Reserve's latest quantitative easing programme.

The launch of QE3, which is expected to benefit bullion by keeping interest rates at rock bottom and fuelling inflation fears, helped send gold to its 2012 high at $1,795.69 earlier this month. It has struggled to maintain that rally, however.

"Markets are following fears that QE3 might end soon and it is not, as many believed, QE infinity (open-ended)," said Peter Fertig, a consultant at Quantitative Commodity Research.
Spot gold was flat at $1,747.54 an ounce at 1432 GMT, while U.S. gold futures were up $3.30 an ounce at $1,749.60.

Prices were expected to remain in a tight range as investors waited for fresh direction on Europe, where a summit of European Union leaders begins on Thursday.

"Normally I would expect that with the ratings outlook for Spain being confirmed as investment grade by Moody's that would be a positive, however you have the EU summit this week on Thursday which is a focus for markets," Fertig said.

Data released Wednesday showed groundbreaking on new U.S. homes increased by 15 percent in September to a seasonally adjusted annual rate of 872,000 units, its quickest pace in more than four years.
Investors will also be watching China's third-quarter gross domestic product figure due later this week.

Weak data would be considered likely to point to stimulative policies that could be supportive for gold.
"The overall attitude towards the yellow metal remains positive looking out over the months ahead, but hesitancy to express that view in the near term is becoming an obstacle. It feels like gold needs a healthy clean-out at this juncture," UBS analyst Edel Tully said in a note to clients.

"A further correction from here would ultimately be beneficial though, given the sharp run-up in prices since mid-October, the repeated failure to breach $1,800 and the degree of speculative length," Tully added.

ETF HOLDINGS RISE

Holdings in bullion-backed exchange-traded funds inched up by almost 16,700 ounces on Tuesday, as a 28,000 ounce inflow to New York's Comex Gold Trust more than offset an 11,500 ounce outflow from ETF Securities' holdings.

Meanwhile, silver ETF holdings slipped by 1.3 million ounces, following outward flows from the iShares Silver Trust and ETF Securities.

In South Africa, where industrial unrest has gripped the country's mining sector, bullion producer Gold Fields (GFIJ.J) said on Wednesday that an illegal strike at some of its facilities had ended.
It said 6,200 employees returned to work at its Beatrix site, which is expected to produce 360,000 ounces of gold this year.

Original:
http://www.reuters.com/article/2012/10/17/us-markets-precious-idUSBRE89G13T20121017