Gold price rebounds on demand but outlook clouded by lower investment

Spot gold rose 0.7 percent to 1,421.81 an ounce by 0952 GMT,after falling for the first time in six session on Tuesday. Gold sank a combined 225 on April 12 and 15 in a sell-off that surprised ardent gold investors and bulls.

U.S. gold futures for June delivery were up 0.9 percent to 1,422.30.

European shares advanced,building on the previous session8217;s hefty gains,after weak German Ifo survey fuelled hopes of a European Central Bank rate cut and continued liquidity injection.

The European Central Bank meets next week and there is growing speculation that a slew of weak economic data and subdued inflation will drive it to cut rates.

8220;You could argue that gold8217;s rebound today is in line with that seen in other metals and equities due to expectations of more monetary easing after German Ifo data,8221; VTB Capital analyst Andrey Kryuchenkov said.

8220;The slightly weaker dollar is also supportive but for gold it8217;s difficult to assess what the drivers are after last week8217;s sharp sell-off and investors are still sidelined,8221; he added.

The dollar gave up initial gains against the euro,with traders citing talk of central bank buying euros against the U.S. currency.

Cash gold has dropped about 15 percent this year. It is torn between a rise in demand for jewellery and coins,and investors in exchange-traded funds cutting exposure to it on worries about central bank sales and prospects of an end to inflationary monetary policy in the United States.

ETF OUTFLOWS

The SPDR Gold Trust,the world8217;s largest gold-backed exchange-traded fund,said its holdings fell 0.68 percent to 1,097.19 tonnes on Tuesday from 1,104.71 tonnes on Monday,their lowest level since October 2009.

But premiums for gold bars soared to multi-year highs in Asia after a spate of physical buying ran down supplies,with dealers in top consumer India expecting a surge in imports this month.

On Wednesday,sellers in Hong Kong were still quoting premiums for gold bars as high as 3 an ounce to spot London prices,their highest level since October 2011.

Gold prices are expected to end 2013 at 1,450 to 1,550 per ounce,only partly recovering from the brutal selloff which shook investor confidence after 12 unbroken years of gains,a Reuters poll showed.

8220;Overall,the demand under the market is keeping it supported and as long as we don8217;t see a repeat of last week Friday and Monday8217;s shenanigans,we look set to consolidate the recent gains,8221; Marex Spectron head of precious metals David Govett said in a note.

Among other precious metals,silver rose 0.3 percent to 22.97 an ounce,platinum gained 0.7 percent at 1,424 an ounce and palladium was 0.3 percent firmer at 673.22 an ounce.