US gold futures finished 1 percent higher for the second straight day on Wednesday, as investors continued to take cues from the stock market, as well as the rising crude oil prices.
Data showed that the open interest level of gold contracts had dropped sharply following the tumultuous sell-off last week, and that analysts expected more volatility because of the risky global markets.
Most-active gold for April delivery on the Comex division of the New York Mercantile Exchange settled up $6.70, or 1 percent, at $652.90 an ounce, after bottoming at $644.50. It hit a session high of $653.7. Leonard Kaplan, president at Prospector Asset Management, said that gold was almost exactly tracking the US stock market.
"The (futures) market is still a little shell-shocked over the last week or so, and volume is way down. It's fairly quiet," Kaplan said. Trading was light. Estimated volume at 1:00 pm EST (1800 GMT) was 15,000 contracts, and options turnover was 9,200. Turnover in the Chicago Board of Trade's electronically traded 100-oz gold contract was 38,334 contracts as of 2:51 pm EST (1951 GMT). (http://www.cbot.com/cbot/pub/page/) US stocks were little changed on Wednesday, helped by rising crude oil prices, but economic worries kept investors cautious.
Both the Dow Jones industrial average and the Standard & Poor's 500 Index edged up. James Steel, analyst at HSBC, advised bullion investors to exercise caution because of risks related to further yen carry trade unwinding and the rising default rates in the US supreme mortgage market.
Steel cited higher oil prices and strong base metals for gold's gain. US crude oil finished up more than a dollar at $61.75 per barrel on a surprise drop in crude inventory. "Everybody who was likely to get out of the market has had ample opportunities in the last week to do so. I don't know if we are going to see really that much carry-over selling," Steel added.
On Monday, Comex gold futures' open interest was reported at 388,841 lots, down about 26,000 lots, or 6 percent, from 415,555 contracts last on Tuesday, prior to the sell-off. Open interest is the number of outstanding long and short futures contracts, which are not offset by an opposing futures transaction.
Steel said the fall in open interest showed liquidation and closing out of long positions because of liquidity withdrawal in the market following the sharp sell-off last week. Kaplan said that the current open interest level remained very high, and that implied the gold market was vulnerable.
John Reade, an analyst at UBS, said in a daily note that the relatively small decline in open interest showed that there was more room for long liquidation. "It is worth noting that during the last two big corrections in gold in May and September last year, the long liquidation lasted for five or six weeks, so it is premature to call a bottom in gold just yet," Reade said.
Spot gold was quoted at $645.70/6.20, compared with $646.00/7.00 late on Tuesday. London's afternoon gold fix was at $646.40. In other precious metals, Comex may silver settled up 12 cents at $13.105 an ounce, after bottoming at $12.890. It peaked at $13.145.
Spot silver was quoted at $12.98/3.03, compared with $12.91/2.96 late on Tuesday. Silver was fixed in London at $12.890. Nymex April platinum closed down $6.30 at $1,192.50 an ounce. Spot platinum was quoted at $1,182.00/86.00. June palladium rose slightly by $1.85 to end at $353.75 an ounce. Spot palladium fetched $345.00/48.00.
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