Gold ekes out gain but technical selling weighs

NEW YORK/LONDON Mon Feb 13, 2012 3:52pm EST

An employee displays a gold tooth at a shop that purchases gold in the Ginza district of Tokyo August 23, 2011.    REUTERS/Toru Hanai

An employee displays a gold tooth at a shop that purchases gold in the Ginza district of Tokyo August 23, 2011.

Credit: Reuters/Toru Hanai

NEW YORK/LONDON (Reuters) - Gold managed to end with a small gain in light volume on Monday, as technical selling and a fizzled euro rally offset bullion's initial gains after Greece's parliament passed austerity measures needed to secure an international bailout package.

Gold, euro and U.S. equities broadly rose in early sessions hopes the Greek deal on strict financial reforms would be enough to secure critical funds to avert a default that could spread to other euro zone economies.

The metal's rally began to fade when it failed to rise above the previous session's high above $1,730 an ounce. Last week, gold encountered heavy technical selling around $1,750 an ounce, the highs set in early December.

"Gold is currently testing its upward trendline. Until it rises above the middle of its bullish double-bottom pattern at $1,804 an ounce, there remains significant overhead resistance," said Adam Sarhan, CEO of Sarhan Capital.

Spot gold was up 0.3 percent at $1,724.39 an ounce as of 2:57 p.m. EST (1957 GMT), having risen as high as $1,733.

U.S. gold futures for April delivery settled down 40 cents an ounce at $1,724.90.

Trading volume almost halved its 30-day average, on track to be the lowest since the holiday trade in late December 2011.

Jonathan Jossen, a COMEX gold options floor trader, said gold's pullback from its initial rally was technically driven as selling accelerated after the metal failed to breach Friday's high at around $1,734 an ounce.

Gold trade was choppy ahead of a key meeting Wednesday when euro zone finance ministers are expected to will decide whether to agree to the 130 billion euro ($171.8 billion) bailout. Greece will have to specify how concrete budget savings will be achieved before Wednesday.

Scenes of riots in Greece underscored a sense of deepening turmoil in the country. The EU warned on Monday that the consequences of failure would be "devastating.

Although gold prices have rallied more than 10 percent this year, they have tended to fall in the short run to signs of more stress in the euro zone, tracking losses in the euro and stocks.

Gold has made significant gains this year on the back of loose monetary policy in the United States and elsewhere, which cuts the opportunity cost of holding the precious metal.

SPEC LENGTH IN FOCUS

Money managers in gold and silver futures and options raised their net long position to a near six-month high last week, data from the U.S. futures regulator CFTC showed.

TD Securities analysts said in a note that the rise in gold's spec length was "too much too soon", while Commerzbank said the bullish fund position gave rise to a potential correction should market optimism abate.

Silver was up 0.4 percent at $33.70 an ounce. Spot platinum was up 0.4 percent at $1,645.93 an ounce, while spot palladium fell 0.9 percent to $693.48 an ounce.

Platinum has been supported by concerns about supply from South Africa, source of three-quarters of the world's platinum.

Platinum's consequent outperformance has cut its discount to gold to around $70 an ounce from around $230 in January.

RBS analysts said in a note that gold is expected once again to trade at an average discount of $50 an ounce to platinum in the fourth quarter of 2012.

(Editing by Lisa Shumaker and Dale Hudson)

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Comments (1)
MarketPawn wrote:
Lack of fundamental transparancy and regulation by CFTC raises doubt about paper contract trading prices.
The concern in actual physical delivery prices, including the India / Iran / China Gold for Oil price negotiation is more of a concern than a propritary paper auction where the CFTC turns a blind eye.

Feb 13, 2012 7:52am EST  --  Report as abuse
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