April 26, 2012 / 6:46 AM / 5 years ago

Gold climbs about 1 percent on options-related buying

3 Min Read

Gold Bullion from the American Precious Metals Exchange (APMEX) is seen in this picture taken in New York, September 15, 2011.Mike Segar

NEW YORK/LONDON (Reuters) - Gold rose nearly 1 percent on Thursday on options-related buying and as investors bought riskier assets a day after Federal Reserve Chairman Ben Bernanke said the Fed was prepared to do more to stimulate the U.S. economy.

Gold, which has tended to follow riskier assets most of this year, extended its rise to a third consecutive day as U.S. equities gained on encouraging corporate results and a strong housing report. .N

Renewed gold buying could be seen after May COMEX options expired in the previous session as liquidation pressure on underlying futures has disappeared for now, traders said.

"After options expire, volatility may temporarily increase as investors have better leverage and can buy more options at a lower premium in the short term," said Thomas Philippides, derivatives broker at Capfeather Brokerage Group.

Spot gold was up 0.8 percent at $1,656.89 an ounce by 3:34 p.m. EDT (1934 GMT). The metal has gained just over 1 percent during its three-day rise.

U.S. gold futures for June delivery settled up $18.20 at $1,660.50.

Trading volume was 30 percent below its 30-day average, preliminary Reuters data showed, but up further from last Friday when volume slumped to the lowest level of the year.

Gold Volatility Down

Despite Thursday's gains, gold's 30-day at-the-money option volatility fell to around 14, near its lowest level since July 2011. Gold volatility had risen in the previous session as May COMEX options expired.

Philippides said gold volatility was currently driven by option activity in gold exchange-traded funds, and the metal has tended to follow the CBOE Volatility Index .VIX known as the equities market fear gauge.

Jeffrey Sica, chief investment officer of SICA Wealth Management LLC, said gold could be even more volatile than equities measured by the S&P 500 index in the near future.

However, the metal should benefit as a hedge against inflation and rising commodity prices in the event of more central-bank money printing, Sica said.

Investors bought gold the day after Fed Chairman Bernanke said the U.S. central bank "would not hesitate" to launch another round of bond purchases to drive borrowing costs lower if it looked like the economy needed it.

Among other precious metals, silver was up 1.3 percent at $31.10 an ounce. Spot platinum climbed 1.2 percent to $1,563.85 an ounce, while spot palladium was gained 1.4 percent to $667.08 an ounce.

Editing by Sofina Mirza-Reid and David Gregorio

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