PRECIOUS-Gold starts Q3 with short covering rally

Mon Jul 1, 2013 4:20pm EDT

* U.S. data points to continued economic growth
    * Prices boosted as U.S. dollar index eases
    * Investors focus on ECB meeting, U.S. payrolls this week
    * Investment demand still seen as weak

 (Updates prices, adds comment, analysis)
    By Barani Krishnan and Clara Denina 
    NEW YORK/LONDON, July 1 (Reuters) - Gold started the third
quarter on a strong footing to jump over 2 percent on Monday as
technical buying and speculative short covering offset concerns
that the U.S. Federal Reserve will rein in its stimulus program.
    Prices surged 2.2 percent to a session peak of $1,260.61 per
ounce as speculative investors raced to cover shorts and some
investors snapped up bullion at what they considered bargain
prices. The market hit a near three-year low of $1,180.71 on
Friday.
    A weaker dollar and fresh flow of institutional money on the
first day of the quarter also provided support. 
    "Considering the past sessions, a little short covering is
to be expected," said David Meger, director of metals trading at
Vision Financial Markets.
    Speculators increased bearish bets in bullion to their
highest in three years in the week to June 25. 
    Spot gold were up $19.92, or 1.62 percent, at
$1,253.0 an ounce by 3:59 p.m. EDT (1959 GMT). 
    Comex gold futures for August delivery settled at
$1,255.7 per ounce, up $32 or 2.6 percent. 
    Technically, bullion had moved out of oversold conditions.
Its relative strength index reading was 35, up from 30 on Friday
and as low as 20 a week ago. A reading under 30 indicates the
market is oversold.
    A slew of data from the euro zone, Japan and United States
signaled a continued tentative global recovery, boosting
equities, copper and oil prices.
    U.S. manufacturing expanded in June, while Japanese and
European data pointed to stabilizing economies. The Institute
for Supply Management said its index of national factory
activity rose to 50.9 in June from 49.0 in May. That was a touch
above the expected 50.5 level.   
    Even so, it will reinforce expectations that the Fed will
cut its bond buying. After its worst quarterly performance in 45
years, gold was still firmly in a bear market - down 26 percent
so far this year - and traders said gains were fragile.
    Many major investors are nursing big losses from the
historic sell-off since mid-April too. 
    Greenlight Capital Management's offshore gold fund, run by
David Einhorn, one of the most widely followed hedge fund
managers, was down 11.8 percent in June, bringing year-to-date
losses to 20 percent.    
    Investor confidence in gold - which fell a record 23 percent
in the second quarter - has been eroded by rising talk of an end
to the Fed's ultra-loose monetary policy, which would support a
rise in interest rates, making the shiny metal less attractive.
    Traders and investors are awaiting U.S. payrolls report for
June, due on Friday, for a better indication of how gold and
other assets would perform.
    A strong payrolls reading would likely signal more pressure
on the Fed to reduce its stimulus, lifting Treasury yields and
the dollar, and depressing gold.
    Markets are also watching the European Central Bank's policy
meeting on Thursday, which is likely to emphasize that the euro
zone economy is in a different stage of recovery than the United
States. 
    
   ETF HOLDINGS DROP
   The amount of bullion held by exchange-traded funds (ETFs) in
gold have fallen this year, with outflows exacerbated by the
recent price tumble. Divestment from the largest gold ETF, SPDR
Gold Trust, stand at nearly 13 million ounces this year.
   Hedge funds and money managers have also slashed their
bullish bets in gold futures and options to their lowest levels
in six years, a report by the Commodity Futures Trading
Commission showed on Friday. 
   The low prices of the past few weeks have subdued physical
demand for gold in Asia, traditionally the largest buyer of the
commodity. 
   Asian consumption of gold had helped limit some of bullion's
losses when prices fell the most in 30 years in April. 
   "While the physical market was able to suspend the downward
trajectory of gold in April following hefty disinvestment, this
time, preliminary data suggest a much weaker physical market
footing," Barclays analysts said in a note.  
   The bank cut its 2013 price forecast to $1,393 an ounce from
$1,483. 
   Sales of American Eagle gold bullion coins plunged to 57,000
ounces in June, the lowest since August last year, as physical
demand from retail investors and collectors sank.
 
   The spot price of silver was down 0.1 percent at $19.59 an
ounce. It reached a near three-year low at $18.19 in the
previous session.
   Platinum rose 2.25 percent to $1,368.74 an ounce and
palladium jumped 3.92 percent to $681.47 an ounce. 

 (Additional reporting by Josephine Mason in New York and Jan
Harvey in London; Editing by Grant McCool and Marguerita Choy)
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.