SINGAPORE - Gold edged up on Monday after a sharp correction in the previous session, buoyed by a stronger euro and physical buying from China, with expectations of aggressive monetary easing in Japan also lending support.  The euro rose as much as half a per cent in its third day of gains, after the European Central Bank kept interest rates unchanged and its chief struck a more optimistic tone on the region’s economic recovery late last week.  The dollar index dropped to its lowest level since the beginning of the year. A weaker greenback makes dollar-priced commodities more attractive for buyers holding other currencies.

But moves in the currency market have done little to change the sluggish mood in the gold market, with analysts expecting bullion to range between $1,660 and $1,680 an ounce until investors get better clues to the health of the global economy and the direction of central banks’ monetary policies.

Speculators cut their net long positions in gold to a four-month low in the week to Jan. 8, data from the US  Commodity Futures Trading Commission showed.

Buying from China, though, helped support sentiment.  “We see a fair amount of buying from China after gold prices fell last Friday, and the yuan hit a record high (against the dollar), making local prices cheap,” said Peter Tse, director at ScotiaMocatta.

“Having said that, gold is still rangebound and I wouldn’t put too much on this morning’s rise until liquidity returns when the European market returns.”

Spot gold rose 0.4 per cent to $1,668.50 an ounce by 0756 GMT, after edging up 0.3 per cent last week.  US gold gained half a per cent to $1,668.30.  Technical analysis suggested spot gold is expected to be neutral so long as it remains in the range of $1,653-$1,678 an ounce, said Reuters market analyst Wang Tao.

Japan’s Prime Minister Shinzo Abe stepped up pressure on the Bank of Japan to further ease its monetary policy, asking the BoJ to set a medium-term inflation target.  The prospects of a weaker yen in the wake of aggressive monetary easing in Japan pushed benchmark gold on the Tokyo Commodity Exchange to a record high on Friday, and fuelled hopes for fresh interest in bullion from Japanese investors, who have been avid gold sellers during the metal’s bull run in the past few years.

Japan’s markets were closed on Monday for a public holiday.  Platinum and palladium extended gains from the last session, tracking higher risk appetite in the market. Spot platinum rose 0.3 per cent to $1,633, on course for a fifth day of gains, matching a similar run in November.  Platinum was close to reach parity with gold as its discount stood at the narrowest in nine months, after platinum’s three-week winning streak.

Spot palladium inched down 0.1 per cent to $696, snapping a four-day rise, and is vulnerable to further decline after build-up of massive net long positions.  Net longs in US palladium futures and options dropped from a record high of 18,379 lots to a one-month low of 15,233 lots in the week ended Jan. 8, still more than double the volume in late October.

“Any market that gets a buildup like that is likely to see people move towards the sidelines because it may see a nasty correction,” said a Hong Kong-based trader.