Gold prices hover above $1,600, recovery hopes offset bargain buys

Gold may continue its recent trading pattern in which prices rise initially with support from buyers in China and other Asian countries, and drop after Asian trading hours end, traders said.

The most-active Shanghai gold futures contract and two spot gold contracts on the Shanghai Gold Exchange dropped to their lowest levels in nearly seven months, tracking losses in the global market, but the lower prices have attracted strong buying interest.

"We have seen quite strong interest in domestic market as prices weaken, although such demand is unable to push prices much higher," a Beijing-based trader said.

"Once prices stabilise around this level, we may see demand dwindle. But another sharp retreat or rally in prices will trigger a lot of investment and physical gold demand."

Spot gold inched up 0.2 percent to $1,607.86 an ounce by 0254 GMT. It dropped to just above $1,600 on Tuesday, close to a six-month low of $1,598.04 hit last week.

U.S. gold also rose 0.2 percent, to $1,607.60.

Technical analysis suggested spot gold is expected to test a support at $1,599 an ounce, a break below which will lead to a further fall towards $1,582, said Reuters market analyst Wang Tao.

The formation of a "death cross" on the spot gold chart, with its 50-day moving average dropping below its 200-day moving average, also suggests a pullback could

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