Gold prices surge on bargain hunting
London, March 31, 2012
Gold prices eked out small gains on Friday on the back of a weaker dollar and as traders sought bargains after the previous session's sell-off and as the first quarter neared its end.
Bullion was set to end the quarter up 6.6 per cent, having outperformed the 1.7-per cent drop in the dollar index and recovering from its drop in the fourth quarter, its first quarterly decline in three years.
Gold's gains for the quarter were well below those of other precious metals. Platinum was set to rise almost 17 percent while silver was headed for a 16 percent gain in the quarter.
For the day, spot gold rose 0.47 per cent to $1,668.77 an ounce at 2.50pm EDT (1815 GMT), trading in an unusually narrow $10 range ahead of the end of the first quarter.
US gold futures for June delivery raced higher than spot prices, rising 0.92 per cent to $1,670.1 an ounce. They settled at $1,671,9, up from $1,654.9 on Thursday.
George Gero, senior vice president of RBC Wealth Management, attributed the rise, albeit small, to bargain hunting with traders betting on a flurry of new asset allocation into gold at the start of the second quarter.
It has been a volatile week for gold. After failing to pierce the $1,700 per oz mark ahead of options expiry, prices fell sharply to around $1,650 per oz on Thursday, close to support levels.
Bullion garnered support as the dollar fell to a one-month low against a basket of currencies, including the euro, after European finance ministers agreed to boost the euro zone's debt crisis firewall to roughly 800 billion euros ($1.1 trillion).
The market was also eyeing the large drop in open interest to just above 407,000 lots following options expiry. This is the lowest level since September 200 and compares with almost 480,000 lots at the start of March and average of 435,000-445,000 lots, according to Gero.
He attributed the drop to liquidation following a 'difficult' rollover to June contracts.
The market typically loses 5,000-6,000 contracts in open interest with a rollover, but activity levels are being stymied by high margin rates, he told Reuters.
Technically bullion needs to hold above $1,639 per oz, its 55-week moving average, Ole Hansen, commodity strategist at Saxo Bank said. It has only broken this on a few occasions over the past 10 years.
'A weekly close below could signal further losses although every time a break has happened the price has relatively quickly managed to recover and move higher,' he said.
Its strong start to 2012 petered out as hedge funds looked elsewhere for better opportunities and even exchange-traded products, a pocket of strength, saw some reduction in March, he said.
Last year worries over the potential spread of the euro zone debt crisis helped drive gold to record highs, but the metal has since re-established its usual inverse relationship with the dollar. News from the euro zone that boosts the euro and weighs on the dollar tends to be positive for gold.
In contrast, silver's fortunes have improved. The 16-per cent rise this quarter is the industrial metal's first positive quarter since the first three months of last year.
It is also the third-best performance among the commodities behind gasoline, up 26 percent, and platinum, up 17 percent.
Silver was up 0.56 percent at $32.39 an ounce. The gold/silver ratio, or the number of silver ounces needed to buy an ounce of gold, eased back towards 51 on Friday.-Reuters