NEW YORK/LONDON (Reuters) - Gold rose around 2 percent on Monday to above $1,700 an ounce, its biggest one-day gain in three weeks, swept higher by hopes that new proposals may emerge out of Europe to tackle the region’s debt crisis.
The metal rose in tandem with equities after Germany and France stepped up a drive for coercive powers to reject euro zone members’ budgets that breach EU rules, easing mounting European sovereign debt fears.
Bullion, which has swung between gains and losses in the past seven straight sessions, surged as Wall Street, commodities and crude oil broadly rose and the dollar fell on resurgent investor appetite.
Some analysts said that gold — a traditional safe haven that has recently tracked riskier assets — is still vulnerable to future sell-offs unless it can recoup its safe-haven appeal amid economic uncertainty. A poor technical outlook could also limit bullion’s gains.
“The rally in gold today to a great extent has been short covering. We have a process in Europe that is not going to be over any time soon,” said Axel Merk, portfolio manager of Merk Funds with $800 million assets under management.
“I do think that gold will resume its position as an inflation hedge and hedge against the various uncertainties in the world,” he said.
Spot gold rose 1.8 percent to $1,709.44 an ounce by 3:39 p.m. EST.
U.S. December gold futures settled up $25.10 at $1,710.80 an ounce.
Volume was about 80 percent above its 30-day average, preliminary Reuters data showed, boosted by contract rollover ahead of December’s first-notice day on Wednesday.
Trading volume often rises as futures investors roll their positions forward ahead of first-notice day. This is because the closing out of the December contract and the initiation of the new benchmark February is showing up as two lots traded on exchange data.
The 25-day implied volatility in gold options, a gauge of bullion market risk, has fallen to its lowest in around a month, indicating some investors are expecting steadier, rangebound trade in underlying gold futures, traders said.
Spot silver tracked gold to rise 3.3 percent to $32.04 an ounce.
Earlier in the session, gold touched a one-week high at $1,719.89 an ounce, near its 100-day moving average — a key technical support it breached early last week.
“Right now caution is paramount as gold appears to be consolidating its recent move between support at its 200 DMA and resistance” at its three-month downward trend-line near $1,750 an ounce, said Adam Sarhan, CEO of Sarhan Capital.
Sarhan said the fact that gold does not rally in response to uncertainty in Europe suggests either the bears are getting stronger, or very high correlation between gold and other risk assets.
The positive link between gold and equities rose to its tightest in six months on Monday. The 25-day correlation-log between gold and the S&P 500 was above 0.5, highest since late May. (Graphic: r.reuters.com/nen35s )
“With the continued dollar strength, or a possible bounce in equities that makes gold ownership less immediately ‘needed’, we could target a down-move to below $1,620,” said Rick Bensignor, chief market strategist of Merlin Securities.
“In the short-term, gold is not acting any differently from commodities or equities. And where we go from here depends on what solutions we get (for the euro zone crisis),” Matthew Turner, analyst at Mitsubishi said.
Investors are likely to closely watch a meeting by euro zone ministers on Tuesday, as detailed operational rules for the region’s bailout fund await approval. Approval would pave the way for the 440 billion euro facility to draw cash from investors.
Among platinum group metals, platinum rose 0.8 percent to $1,536.99 an ounce, while palladium rose 2 percent to $573.75 an ounce.
SETTLE CHNG CHNG VOL US Gold DEC 1710.80 25.10 1.5 1684.00 1722.40 165,338 US Silver DEC 32.161 1.147 3.7 31.245 32.285 38,791 US Plat JAN 1539.50 6.40 0.4 1536.00 1567.50 4,789 US Pall DEC 578.35 8.25 1.4 565.60 595.00 3,670
Gold 1709.44 30.29 1.8 1681.20 1719.89 Silver 32.040 1.010 3.3 31.100 32.300 Platinum 1536.99 12.28 0.8 1540.25 1562.25 Palladium 573.75 11.50 2.0 567.50 593.22
TOTAL MARKET VOLUME 30-D ATM VOLATILITY
CURRENT 30D AVG 250D AVG CURRENT CHG US Gold 307,394 171,038 189,638 27.9 -0.44 US Silver 70,936 57,434 78,957 49.09 3.96 US Platinum 5,052 6,323 7,530 31 -3.00 US Palladium 9,165 4,673 4,411
Additional reporting by Clare Kane in London; editing by Marguerita Choy