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Gold inched up on Tuesday, consolidating above a 1-1/2-week low hit in the previous session, as expectations for further strength in the metal tied to recent central bank stimulus measures supported sentiment.
Cash gold dropped half a percent in the previous session, after data showing weak German business sentiment weakened the euro and sent the dollar to a 1-1/2-week high against a basket of currencies, weighing on dollar-priced commodities including gold.
Despite a pullback from a 6-1/2-month high hit last Friday, gold's outlook remains rosy as investors expect the stimulus plans by central banks to maintain a bullion-friendly low interest rate environment.
"The investment interest in gold continues to rise, as we see COMEX net length increasing and gold ETF (exchange-traded fund) holdings up," said Li Ning, an analyst at Shanghai CIFCO Futures. "There is a strong likelihood that gold will rise further."
Holdings in physically backed gold ETFs rose to a record high of 73.765 million ounces, or 2,294.348 metric tons, by September 24.
Spot gold was little changed at $1,765 an ounce by 0308 GMT, after dropping to a one-week low of $1,755.30 in the previous session.
U.S. gold edged up 0.2 percent to $1,768.
Some argued that though the sentiment in gold will continue to be supported by easy monetary policies, the momentum might be dampened by sluggish physical demand and high speculative interest in the futures market.
"We still prefer to be buying gold on dips and believe the break higher will eventually come. But the futures market needs to lose some speculative length and the physical market needs to adjust to a higher price range first," said Walter de Wet, an analyst at Standard Bank in a research note.
He expected gold to reach $1,900 in the latter half of the fourth quarter.
It may be time for gold to take a break after five weeks of straight gains, which coincides with the last trading week before key consumer China shuts down for a weeklong National Day holiday next week.
"People will square off some positions before the holiday next week," said a Shanghai-based trader, "In addition, sluggish oil prices are also weighing on sentiment in gold and silver."
High oil prices tend to benefit gold, a good hedge against inflation. U.S. crude futures wallowed near a 1-1/2-month low hit last week.
Spot palladium, which staged its sharpest one-day decline in more than six months with a 4.1-percent drop on Monday, inched up 0.1 percent to $641.92.
By Rujun Shen