Flight to safety keeps gold near one-month high

By A. Ananthalakshmi

SINGAPORE (Reuters) – Gold retained sharp overnight gains on Thursday to trade near its highest in over a month, with investors seeking safety amid increasing concerns over a slump in the global economy.

Spot gold was steady at $1,239.20 an ounce by 0628 GMT. The metal rose to its highest since Sept. 11 at $1,249.30 in the previous session, before paring some gains to close up 0.7 percent.

Asia extended a selloff in global equities on Thursday. The dollar index was hovering close to a three-week low, while oil extended losses.

"With no sign that the selloff is over in any of these three complexes, it seems that the precious metal will continue to receive a bid and we would therefore want to maintain a long exposure for the time being," INTL FCStone analyst Edward Meir said in a note.

Flight from risk resulted in a massive rally in U.S. Treasuries, pushing the benchmark 10-year note's yield as far as 1.865 percent on Wednesday, its lowest level since May 2013.

The S&P 500 briefly turned negative for the year on Wednesday, while European equities shed 3.2 percent to mark their biggest one-day slide in almost four years.

Investors were spooked after U.S. retail sales declined in September as consumers pulled back on spending for a range of items, while producer prices dropped for the first time in over a year.

Sluggish U.S. data could prompt the Federal Reserve to delay a hike in interest rates, a potential boost for non-interest-bearing gold.

The disappointing numbers followed data from China that showed a drop in the country's inflation rate to a five-year low. The United States on Wednesday renewed a warning that Europe risks falling into a downward spiral of dropping wages and prices.

CAUTIOUS OUTLOOK

Despite the recent gains and a brighter technical picture, concerns still lingered over how much further gold could climb after the metal was unable to maintain all of its gains in the previous session.

SPDR Gold Trust, the world's largest gold-backed exchange-traded fund and a good proxy for investor sentiment, said its holdings fell 0.27 percent to 759.14 tonnes on Wednesday.

Physical demand, which usually provides a floor for prices, also seemed to have come off a little with the price gains. Premiums in top buyer China had fallen to $1-$2 an ounce from about $4 in the previous session.

The fourth quarter is typically a strong period for gold demand in major buyers China and India due to festivals and an increase in weddings.