February 7, 2012 / 11:25 AM / 6 years ago

PRECIOUS-Gold rises nearly 2 pct on Greece bailout optimism

* Bullion boosted as euro rises on draft Greek deal hopes
    * Gold holds gains after Greek meeting on bailout postponed
    * Rally quickens as $1,735 resistance, downtrend line broken
    * Coming up: Greek political leaders meeting on bailout Wed

 (Recasts, updates prices, market activity, adds link to
    By Frank Tang and Jan Harvey	
    NEW YORK/LONDON, Feb 7 (Reuters) - Gold prices rose
1.5 percent on Tuesday for their biggest daily gain
in two weeks, as expectations that a Greek rescue deal will be
completed drove the dollar down sharply against the euro.	
    Bullion, which had dropped in early trade on nervousness
about Greece, rebounded to snap two days of losses as Greece's
government was preparing a list of reforms needed to clinch a
new financing package.	
    Hopes for a bailout plan that would move Athens closer to
avoiding a chaotic debt default boosted gold's inflation-hedge
appeal. The metal's rally also sharply outpaced Wall Street's
    "If the deal falls apart, the ECB (European Central Bank) is
going to be even more aggressive in monetizing things and create
credit to insulate the banking system from a disorganized
default," said James Dailey, portfolio manager of the TEAM Asset
Strategy Fund.	
    "It's basically a win-win for gold at this point," he said.	
    Spot gold was up 1.6 percent at $1,746.64 an ounce by
2:49 p.m. EST (1949 GMT) . In early trade, gold had
dipped as low as $1,709.29, near a two-week low.	
    U.S. gold futures for April delivery settled up
$23.50 at $1,748.40. Trading volume was 15 percent below its
30-day average but largely in line with the recent pace.	
    Silver climbed 1.8 percent to $34.22 an ounce.	
    After briefly entering a bear market in December, gold has
risen about 10 percent so far this year, surging last month
after the U.S. Federal Reserve said it would keep interest rates
near zero at least until late 2014 and stood ready to offer
extra economic stimulus.	
    Officials worked on the draft of a text on the 130 billion
euro ($172 billion) bailout plan that will be put to Greek
leaders for approval. The metal stayed higher even after the
meeting to discuss the rescue plan was postponed to
    "If we do get a resolution of the current standoff, then
gold will likely benefit," said Anne-Laure Tremblay, an analyst
at BNP Paribas.	
    Heavy buying of bullish option strategies and an eight-week
high in the euro also lifted gold, traders said.	
    Michael Matousek, senior trader at U.S. Global Investors,
which has over $2 billion in mutual-fund assets, said hopes for
a Greek bailout deal had rekindled fears about money printing by
central banks, which boosted gold buying.	
    Gold's gain was also fueled by a technical rally after it
broke key resistance at a downtrend line at $1,680 an ounce in
late January, analysts said. 	
    On Tuesday, gold's rally gained pace after it breached the
previous session's high around $1,735 an ounce.	
    Also boosting gold sentiment was news that Hong Kong's
shipments of gold to mainland China in 2011 more than tripled
from a year earlier, confirming China's rapidly growing appetite
for bullion. 	
    Mohamed El-Erian, CEO and co-chief investment officer of
bond fund giant PIMCO, said investors should be underweight
equities while favoring "selected commodities" such as gold and
oil, given the fragile global economy and geopolitical risks.
    However, a study of financial assets over the past 112 years
by Credit Suisse and several London Business School scholars
showed gold prices have been too volatile to play a reliable
role as a hedge against inflation. 	
    Among other precious metals, spot platinum gained 1.4
percent to $1,644.18 an ounce, and spot palladium edged
down 22 cents at $702.75 an ounce.
 2:49 PM EST     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold APR   1748.40  23.50   1.4  1712.60 1752.60  147,772
 US Silver MAR  34.194  0.444   1.3   33.155  34.370   47,167
 US Plat APR   1654.80  25.00   1.5  1614.50 1655.70    7,160
 US Pall MAR    709.15   3.20   0.5   696.05  710.00    4,478
 Gold          1746.64  27.44   1.6  1710.65 1749.70         
 Silver         34.220  0.590   1.8   33.170  34.330
 Platinum      1644.18  22.19   1.4  1615.00 1649.00
 Palladium      702.75  -0.22   0.0   697.00  708.50
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        156,022   181,389   193,419     21.71   -0.02
 US Silver       60,841    39,405    40,657     36.77    1.06
 US Platinum      7,223     6,436     7,671        31   -3.00
 US Palladium     5,732     3,487     4,782                  
($1 = 0.7552 euros)	
 (Editing by Dale Hudson)
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