June 12, 2012 / 12:46 AM / in 7 years

Gold rises on physical demand, euro uncertainty

NEW YORK (Reuters) - Gold rose for a third consecutive session on Tuesday as physical bullion buying and the accumulation of bullish bets linked to uncertainty over the euro zone debt crisis helped the metal recover from early losses.

A small-scale miner holds his gold that was melted together at a processing plant located around 100km (62 miles) north of the Mongolian capital city Ulan Bator in this April 5, 2012 file picture. REUTERS/David Gray/Files

Bullion, which veered away from its positive correlation with riskier assets in the previous session, tracked gains in U.S. equities and the euro following their declines on Monday when some investors said the European financial rescue of Spanish banks was too small.

Signs of a worsening European crisis, surging Spanish bond yields and a key election in Greece on Sunday prompted investors to seek refuge in the safe-haven metal. Some bought gold after they digested the $125 million Spanish bailout package which would provide the markets with additional liquidity.

“We’ve seen demand pick up on the physical side here. Every time we dipped dramatically below $1,600, the market remains well supported,” said David Meger, director of metals trading at Vision Financial Markets.

Spot gold rose 0.6 percent to $1,605.10 an ounce by 2:32 p.m. EDT (1832 GMT), its biggest one-day gain since June 1.

U.S. gold futures for August delivery settled up $17 an ounce at $1,613.80, with trading volume about 40 percent below its 30-day average, preliminary Reuters data showed.

Bullion fell earlier in the session after data showed U.S. import prices recorded their largest decline in nearly two years in May, a sign of weakening global demand for goods. [ID:nL1E8HC29G] However, a brief rally in the euro at around 9 a.m. appeared to spark gold’s gains.


COMEX gold option floor trader Jonathan Jossen said there was strong short-term interest in the COMEX July options which expire in two weeks.

Traders also reported fund buying in deep out-of-the-market calls, other bullish strategies including bull-call spreading and volatility plays such as straddles.

The metal saw some safe-haven bids from jittery investors after Austria’s finance minister said Italy may need a financial rescue because of its high borrowing costs, and as Spain’s bond yields rose to their highest levels since the euro’s launch in 1999.

“Spain, Italy and Greece are the three reasons why gold should become more attractive because there is a lot of fear out there about what could happen next,” said Bill O’Neill, partner of LOGIC Advisors, a commodities-focused wealth manager.

Greece’s general election on Sunday could also derail the region’s effort to prevent the crisis from escalating. Some said this could send global financial markets into a tailspin and drag gold lower.

Among other precious metals, silver was up 1 percent at $28.79 an ounce. Spot platinum climbed 0.7 percent to $1,445.74 an ounce, while spot palladium gained 0.7 percent to $621.25 an ounce.

Additional reporting by Jan Harvey in London; Editing by Alden Bentley and Jim Marshall

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