NEW YORK Gold prices climbed on Monday, partially recovering from the previous session's sharp decline, boosted by technical buying and better Indian physical demand following the recent price drop.
Monday's gains lifted prices just above its 50-day moving average (DMA). Bullion appeared to bottom out and rebounded after sliding below the key chart support at $1,721 an ounce earlier in the session.
With some investors staying on the sidelines ahead of the much-awaited policy statement from the Federal Reserve on Wednesday, a break below the 50 DMA could lead to further weakness, analysts said.
"With prices near the $1,720 support level, a sustained drop below this key level may elicit further short-term liquidations, in our view," said James Steel, HSBC's metals analyst.
Gold's decline may have already alleviated selling pressure by recent buyers who might be more inclined to take profits to prevent potential additional losses, traders said.
Spot gold was up 0.3 percent at $1,725.10 an ounce by 2:02 p.m. EDT (1802 GMT), having earlier touched $1,713.39, its lowest since September 7.
U.S. gold futures for December delivery settled up $2.30 an ounce to $1,726.30, with trading volume about 35 percent below its 30-day average, preliminary Reuters data showed.
The precious metal last week posted its biggest weekly drop since late June as a rally induced by the Federal Reserve's monetary easing program ran out of steam in mid-October after gold hit its high for the year at $1,795.69 an ounce earlier in the month.
GOLD LENGTH CUT, EYES ON FED
Hedge funds and other big speculators have appeared to bail out of gold at least for now, latest data from the Commodity Futures Exchange Commission showed, after bullion's repeated failure to breach the $1,800 an ounce mark.
U.S. COMEX gold futures saw an 8-percent drop in net longs last week. U.S. managed money in gold fell by $2.4 billion, accounting for more than 85 percent of the week's decline among all commodities.
Attention is now turning to this week's policy meeting of the Federal Reserve for its impact on the currency markets and the wider financial sector.
While the Fed is likely to hold off from new action after announcing at its last meeting that it would buy $40 billion of mortgage-backed bonds a month until the U.S. job market improved - a move that sent gold prices sharply higher - its remarks will still be closely scrutinized.
On the physical markets, dealers reported light buying from Asian jewelry makers. Top consumer India may increase purchases during the upcoming Hindu festive season, seen as an auspicious time to buy gold, although demand this year has been weak.
Among other precious metals, silver gained 0.5 percent to $32.22 an ounce, while platinum edged down 0.4 percent to $1,600.99 an ounce and palladium inched down 8 cents to $618.22 an ounce.
(Additional reporting by Jan Harvey and Clare Hutchison in London and Lewa Pardomuan in Singapore; Editing by William Hardy, Maureen Bavdek and Phil Berlowitz)