NEW YORK/LONDON (Reuters) - Gold rose 1 percent on Thursday, following the euro and U.S. equities for a second day of gains, as an expected conclusion of a Greek bond deal boosted financial markets across the board.
Bullion’s rally quickened pace as Greece moved closer to wrapping up its bond swap with private investors on Thursday. However, the metal came off its highs after the European Central Bank delivered a surprise warning on inflation and lowered its growth forecast.
Investor sentiment in gold already received a boost after a Wednesday report said U.S. Federal Reserve officials were considering a new type of bond-buying program. Year to date, gold is up nearly 9 percent on a near-zero U.S. interest rate outlook.
However, investors are expecting gold to rally further on expectations that the Fed and the ECB will continue easy monetary policies to stimulate growth. Gold posted a 5-percent tumble last Wednesday on fears of no imminent U.S. easing.
One gold fund manager said increased money printing by central banks should prompt investors to buy gold as a hedge against shrinking portfolio value.
“At some point, the (Greece) resolution is going to be much harder...other than just pouring money into it,” said Dan Denbow, manager of the USAA Precious Metals and Minerals Fund with assets under management of around $2.1 billion.
“Gold may not look like it’s going anywhere, but anything else is devaluating against it,” Denbow said.
Spot gold was up 1.1 percent at $1,702.70 an ounce by 3:19 p.m. EST (2019 GMT).
Despite a two-day rally, gold is on track for its second consecutive weekly loss after a 2-percent tumble on Tuesday as jitters over Greece’s debt sent the metal below its 200-day moving average.
U.S. gold futures for April delivery settled up $14.80 at $1,698.70 an ounce, with trading volume about 10 percent below its 30-day average but above its previous session, preliminary Reuters data showed.
The gold market will closely monitor a deadline for participation in Greece’s debt swap later on Thursday. Greece, the debt-struck euro zone member, indicated that it had already cleared a vital threshold needed to pass a deal that will hand bondholders steep cuts in the value of their investments.
Bullion investors also await Friday’s February U.S. non-farm payrolls report, which could be a driver to gold prices via its effects on the U.S. dollar.
“...Gold will actually rally on the back of more confidence. The chance of another big shock from Greece is very low and the U.S. is recovering,” said Daniel Smith, an analyst at Standard Chartered.
Even though gold had rallied in the last 11 consecutive years, the metal’s safe-haven status appeared to have weakened after recent sharp pullbacks even as the euro zone still faced a chaotic Greek default.
Denbow said it is not surprising for gold to retest its late December low near $1,500 an ounce due to shorter-term trade actions and as investors sold the metal for liquidity needs.
Gold’s rally earlier this year was not driven by a lot of volume, suggesting a lack of conviction in the “risk-on” trade when bullion followed gains in riskier assets such as equities, Denbow said.
Holdings of gold in the world’s largest exchange-traded products held at a record 70.82 million ounces. ETPs have drawn in well over half a million ounces of gold in the last month, reflecting demand among investors for the metal.
Silver rose by 1.4 percent on the day to $33.84 an ounce.
In other metals, platinum rose 2.1 percent to $1,659 an ounce, while palladium rose 2.5 percent to $697.70 an ounce.
Editing by Lisa Shumaker and Sofina Mirza-Reid