NEW YORK/LONDON (Reuters) - Gold rose more than 1 percent on Tuesday, partially recouping the previous session’s tumble, as buying related to options’ expiration lifted bullion prices toward the key $1,700-an-ounce option strike price.
Bullion, which has lost 5 percent in the past five sessions on global debt worries, was boosted by heavy buying related to the expiry of COMEX December options, which were popular among investors for hedging against futures position or outright betting on bullion prices.
“We have so much more open interest in calls than we had in puts, which is a bullish indicator for the underlying futures,” said George Gero, vice president of RBC Capital Markets.
The open interest of all COMEX call options were around 15 percent above that of put options, latest CME Group data showed.
Spot gold gained 1.2 percent to $1,697.99 an ounce by 3:04 p.m. EST.
The price of the underlying gold futures often gravitates toward the major strike prices as options head to expiry, in part because option dealers need to buy or sell futures to ensure they can deliver or receive the instrument if the options expire in the money. At the same time, options owners often try to drive futures into the money before expiration.
The December COMEX option was by far the most popular month and $1,700 strike had one of the highest open interest among all the strikes, with around 6,500 lots, Reuters data showed.
However, prices of gold put options were still bid over calls, as bullion investors bought puts and sold calls to lock in profits, floor traders said.
U.S. December gold futures settled up $23.80 at $1,702.40 an ounce. Volume was one fifth above its 30-day norm for a fourth straight session, preliminary Reuters data showed, reversing a recent slower trading pace.
Silver rose 3.5 percent to $32.76 an ounce, recovering from a one-month low of $30.63 hit in the previous session.
On Monday, it lost 2.5 percent for its worst drop in nearly two months in a global market maelstrom rattled by euro zone debt fears and the apparent inability of U.S. politicians to reduce government debt by $1.2 trillion.
“I wouldn’t be too confident it’s going to rally short-term because risk aversion is at very high levels and when risk aversion is extremely high gold tends to fall,” said Jesper Dannesboe, senior commodity strategist at Societe Generale.
Despite Tuesday’s gains, gold’s technical outlook remained vulnerable after it traded below key support at its 100-day moving average in the previous session.
“Gold looks terrible on the chart and it needs to hold support between $1,693 and $1,695 an ounce,” said COMEX gold options floor trader Jonathan Jossen.
The next major support for gold will be its 200-day average at around $1,595 an ounce, analysts said.
Even though the traditional safe-haven gold has taken to following the stock market recently, uncertainty in the euro zone underpinned buying as the region’s demand from banks for central funding surged to a two-year high on Tuesday.
Platinum rose 1.2 percent to $1,565.25 an ounce, and palladium gained 2.8 percent to $600.97 an ounce.
SETTLE CHNG CHNG VOL US Gold DEC 1702.40 23.80 1.4 1667.50 1706.40 153,047 US Silver DEC 32.951 1.835 5.9 31.160 33.040 55,036 US Plat JAN 1571.00 27.20 1.8 1542.00 1574.00 5,225 US Pall DEC 601.15 15.35 2.6 584.95 610.15 4,700
Gold 1697.99 19.49 1.2 1672.65 1705.30 Silver 32.760 1.120 3.5 31.220 33.020 Platinum 1565.25 19.25 1.2 1545.50 1570.25 Palladium 600.97 16.24 2.8 587.50 606.50
TOTAL MARKET VOLUME 30-D ATM VOLATILITY
CURRENT 30D AVG 250D AVG CURRENT CHG US Gold 187,646 154,010 189,093 29.58 1.67 US Silver 78,426 50,187 78,762 51.08 6.94 US Platinum 5,372 6,212 7,552 31 -3.00 US Palladium 6,778 3,829 4,370
Reporting by Frank Tang; Editing by Alden Bentley