Gold rises on Greek austerity bill, off two-week low

Tuesday, 14 February 2012 00:00 - - {{hitsCtrl.values.hits}}

SINGAPORE (Reuters): Gold strengthened on Monday in line with gains in shares and the euro after Greece’s parliament finally approved a deeply unpopular austerity bill to secure a second bailout from the European Union and the IMF to avoid bankruptcy.

Gold, typically a safe-haven asset, has been tracking the fortunes of the euro and stocks in recent months, with speculators selling the metal for cash to cover losses in other markets as the euro zone debt crisis caused much turbulence in financial markets.

The approval of the austerity bill by the Greek parliament triggered serious violence in the streets of Athens and elsewhere in the country, though Asian shares and the euro moved higher in relief.

The European Union plans to meet on Wednesday to discuss giving a seal of approval for the new 130 billion-euro bailout.

“We are still looking for more measures out of Europe before we see a sustainable risk rally. Yes, perhaps it’s good that we have a second bailout package and we are sure that at least we are not going to see Greece defaulting,” said Ong Yi Ling, an analyst at Phillip Futures.

“I am looking for the resistance for gold at about $1,760. That will be the first resistance and the second one is at about the $1,800 level. For gold to break the $1,800 level, we need more measures, I would say.”

U.S. gold for April delivery edged up 0.4 percent to $1,732.20 an ounce.

Physical buying from China also helped lift gold 0.6 percent to $1,729.69 an ounce by 0724 GMT.

Bullion fell to $1,703.69 on Friday, its lowest since late January, as uncertainty over negotiations for Greece’s bailout package prompted investors to cash in.

“The Chinese guys are still buying. Whenever there is a dip in prices, they will buy. There’s no change in their attitude,” said a physical dealer in Hong Kong, who trades gold bars.

“They are still buying today, because I think the downside is limited for the time being. Sentiment has improved a little bit.”

Analysts expect sentiment on gold to remain bullish in the longer term, as central banks around the world are expected to adopt further monetary easing measures to help offset the impact from Europe’s woes. This will raise the inflation outlook and benefit gold, seen as a good hedge against rising prices.

In a sign of unwavering interest in gold, speculators raised net long positions in U.S. gold and futures in the week ended Feb. 7, pushing the net length in gold to a nearly five-month high.

Spot platinum led the gains in precious metals with a 1.3-percent climb, building on six weeks of consecutive rise.

The gold-platinum spread hovered above $65.89, a 4-1/2-month low hit in the previous session.