PRECIOUS-Bargain hunters lift gold, gains may be short-lived

Mon Apr 22, 2013 4:05pm EDT

* Spot gold up more than $100 since April 16 low

* Bargain hunters, physical buyers behind the lift

* Strong buying seen in Asia, ETF holdings drop

By Susan Thomas and Carole Vaporean

NEW YORK/LONDON, April 22 (Reuters) - Gold rose closed up 1.5 percent on Monday, cutting gains late in the session but remaining supported by strong physical buying, after the price hit a two-year low last week.

At the same time, investors reduced bullion holdings in the top exchange-traded fund to the lowest level in nearly three years.

The near-term technical outlook remains positive for gold, which is down more than 15 percent this year. Longer term, however, it may resume its downtrend despite the physical buying in Asia and elsewhere.

At one point, spot gold was up 2.48 percent at a session-high of $1,438.66 per ounce. That was more than $100 higher than the two-year low of $1,321 last Tuesday. In later trading bullion fetched $1,424.30 per ounce, up 1.47 percent from late Friday.

U.S. gold futures hit an intraday high of $1,438.80 an ounce on Monday from the previous close of $1,395.60. COMEX gold for June delivery finished at $1,421.20, up 1.8 percent, then rallied to $1,426.70 in after-hours trade.

"The continued technical bounce off the recent lows is being prompted by the bargain hunting and strong physical demand that we've seen in the market from this recent sell off," said David Meger, vice president and director of metals trading, at Vision Financial Markets in Chicago, Illinois.

Gold posted its biggest-ever daily loss in dollar terms last Monday, shocking investors who have used gold as protection against inflation and other market risks.

"Physical demand is giving the price a psychological boost, but don't think that could make up for the 65-tonne outflows from ETFs last week," Saxo Bank senior manager Ole Hansen said.

The U.S. Mint reported sales of gold coins to the public of 167,500 ounces so far in April, the highest level since May 2010, Barclays said in a note to clients.

"The market is vulnerable to intense short covering ... while many physical players see these prices as very attractive indeed and will chase price dips," VTB analyst Andrey Kryuchenkov said.

"However, we still believe the market went through a fundamental shift and that a sustained rebound ...is very unlikely."

Gold prices thrive in a high-inflation, low-interest rate environment, because this reduces the opportunity cost of holding a metal that pays no yield.

It had rallied to an 11-month high in October last year after the Fed announced its third round of aggressive economic stimulus, raising fears the move would stoke inflation.

ETF OUTFLOWS

Outflows from exchange-traded funds could indicate that investors are parking their money in assets other than gold, but last week's trading data from the United States also showed that funds had injected new money into gold futures.

Holdings of the largest gold-backed exchange-traded-fund, New York's SPDR Gold Trust , dropped 0.88 percent on Friday to their lowest level since March 2010.

Hedge funds and money managers raised their net longs in gold futures and options in the week to April 16, a report by Commodity Futures Trading Commission showed on Friday, as new money entered the market at lower prices.

Other precious metals benefited from gold's gains, with silver up 0.86 percent at $23.37 an ounce and palladium 1.26 percent higher at $680.50. Platinum rose 0.65 percent at $1,431.24 an ounce.