Gold inches up while ETF hits record, U.S. stimulus eyed

TOKYO - Gold inched up closer to $900 an ounce on Tuesday, but the market was capped as investors awaited the expected passage this week of U.S. economic stimulus measures.

Investors have been taking profits after the market hit a near four-month high of $930 but failed to hold that level.

The focus is now on the U.S. Congress and the $800-billion economic stimulus package, with investors seeking clues on whether it will be enough to shore up the sagging U.S. economy.

President Barack Obama has been urging Congress to act swiftly on the stimulus bill.

"Everybody is waiting for the stimulus package, which is expected by the end of the week," said Adrian Koh, a trader at Philip Futures.

If the package contained details deemed effective for the economy, "it could lead to investors stopping buying of gold and moving out of the safe-haven gold market," he said.

Gold was trading at $898.80 an ounce, up $3.8 or 0.4 percent, from New York's notional close on Monday.

Gold has gradually gained in popularity among investors as uncertainty over the global economy has increased in the wake of the financial crisis that battered markets across the board.

Massive fiscal stimulus measures announced by governments have also raised concerns about the risk of rising inflation, giving traders another incentive to buy gold as a hedge against price increases.

Holdings in the world's largest gold-backed exchange-traded fund hit a fresh record, reflecting the strength of investor appetite for the yellow metal.

The SPDR Gold Trust, which issues securities backed by physical stocks of gold, hit a record 881.87 tonnes on Feb. 9, up 1.7 percent from the previous day.

"The link between the dollar and gold has been positive over the past one to two weeks, suggesting that players are still bullish on the market's longer-term outlook," Koh said.

The dollar eased 0.1 percent against the yen but rose 1.5 percent against the euro.

The U.S. Treasury has dropped plans to establish a "bad bank" to buy distressed assets from commercial banks as part of a financial rescue package, CNBC reported on its website on Tuesday, adding to doubts that the plan would be effective.