Gold rose more than 1 percent on Wednesday to its highest in a month, rising along with the euro, stocks and other commodities as investors hoped a European Central Bank policy meeting later would result in action to combat the euro zone financial crisis.
Spot gold was up 1 percent at $1,633.18 an ounce at 11:41 SA time, while US gold futures for August delivery were up $17.80 an ounce at $1,634.70.
Other precious metals rose in gold's wake, with both silver and palladium climbing nearly 3 percent to their day's highs. Commodities rallied broadly, with crude oil up nearly 1 percent, as a stronger euro supported interest in dollar-priced assets.
“This morning there is a general commodities run; the whole sector is up by different degrees,” RBS Global Banking & Markets analyst Nikos Kavalis said. “This to a large extent is linked to the euro doing rather well.”
Gold prices on Friday had rebounded 4.3 percent from below $1,550, their biggest one-day rise in more than three years, after disappointing US payrolls data reignited talk of a fresh round of monetary easing from the Federal Reserve.
“We are positive on gold, and it is definitely very encouraging that we've gone past the $1,600 milestone,” Kavalis said. “It has moved up the whole support level ... (but) to regain traction, we need the professionals to go back in.”
Net speculative length, or bets on higher prices, in Comex gold futures is languishing near multi-year lows.
Investors are hoping the ECB will unveil more action to tackle acute financial problems in Spain and elsewhere in the euro zone, after a Group of Seven emergency conference call on Tuesday failed to produce any concrete solution.
The ECB is expected to indicate a readiness to cut interest rates as soon as next month but to hold back from policy moves.
German bund futures fell, with the near-term outlook hinging on whether the ECB cuts interest rates to help counter an economic slowdown. The euro rose 0.6 percent against the dollar ahead of the meeting.
The dollar remains under pressure after Friday's poor reading of the US jobs market.
VASTLY DISAPPOINTING
“Gold's sharp rally after a vastly disappointing US employment print last Friday and its ability to subsequently hang on to most of those gains is commanding attention,” UBS said in a note.
“Today is far more of a test of the follow-through interest, and this week there will be plenty of opportunities for gold to either pass the safe haven test or reverse back into its old risk-on shell,” it added. “So far, gold is attracting European buying and has traded up to the high of $1,637.”
Last week's sharp rally in gold prices prompted a wave of scrap selling in India and elsewhere in Asia as market participants took advantage of higher prices, while fresh buying was sluggish on Wednesday.
Gloomy equity markets and high interest rates have forced investors in India to cash out of gold, said Prithviraj Kothari, president of the Bombay Bullion Association.
“During last year's price run-up, scrap volumes were low, as Indian merchants withheld material ... in expectation of still higher prices,” HSBC said in a note.
“Following recent declines, the notion of even higher bullion prices may not be as widely held by Indian merchants, and recycled material is being handed in for processing at a much faster pace than last year,” it said, adding that it might result in modest pressure on prices.
Among other precious metals, silver was up 2.6 percent at $29.23 an ounce, having earlier touched its highest since May 10 at $29.30 an ounce.
The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, corrected to 55.9 after hitting its highest for the year yesterday at 57.3 as the white metal outperformed.
Spot platinum was up 2.1 percent at $1,459.24 an ounce, while spot palladium was up 0.4 percent at $621.97 an ounce. - Reuters