Gold rose about 1% on Thursday as bargain hunters resurfaced after prices tumbled to another 4-1/2 month low in the previous session and the euro rebounded, but gains could be limited by fears of a deepening debt crisis in Greece.
unwound their bullish bets in gold, cashing in the metal to cover for losses in other markets, after the turmoil in Europe raised the spectre of a recession that threatens to hurt the global economy.
Spot gold added USD 12.23 an ounce to USD 1,550.53 by 0618 GMT, after rising to a high of USD 1,553.36 earlier, as the euro regained strength following a drop to a four-month low on Wednesday. Bullion plunged to USD 1,527 – its weakest since December 29 – on Wednesday.
“For now, we could see some buying on dips below USD 1,550. The situation in Greece seems uncertain and the outcome could turn the markets either way,” said Lynette Tan, an analyst with Phillip Futures in Singapore.
“Investors are currently trading cautiously and we expect gold to be range trading. For now, it’s probably between USD 1,500 and USD 1,550.”
US gold futures hit a high of USD 1,553.7 an ounce and was at USD 1,550.60, up USD 14.00. The contract had plunged to a multi-month low of USD 1,526.70 on Wednesday.
Gold, traditionally a safe-haven asset, has been moving in tandem with riskier assets such as equities, industrial metals and oil this year, as investors turn to the safety of the dollar.
But in China, gold demand hit a record high in the first quarter on investor worries over inflation and property market curbs, the World Gold Council said on Thursday, bucking a lower trend in global consumption driven by higher gold prices.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5% on short covering, after sliding more than 3% – its biggest one-day drop in six months – in the previous session.
But fears of contagion spreading to other stressed euro zone economies lingered after the European Central Bank said it has stopped providing liquidity to some Greek banks as they have not been successfully recapitalised.
IMF chief Christine Lagarde warned of “extremely expensive” consequences if Greece were to leave the euro zone, a once taboo possibility that European leaders have begun to discuss openly given the nation’s political chaos.
“Austerity is imposing intolerable unemployment and political chaos in Greece, and won’t permit it to repay its debts. Athens must abandon the euro and reintroduce the drachma,” said Peter Morici, an economist at the University of Maryland.
“For austerity and debt restructuring to work, Greece must generate new exports and curb imports to accomplish trade surpluses and earn euro to begin paying off its remaining debt.”