US gold futures finished more than 1 percent higher on Friday as proposals for physically backed exchange-traded funds boosted interest among investors, inching closer to the psychological $700 level.
Other precious metals were also helped by a recovery in China's stock markets, which eased worries that a possible Chinese interest rate hike could slow growth. Both platinum and palladium jumped more than 2 percent, while silver also gained over 1 percent on Friday.
Most-active gold for June delivery on the COMEX division of the New York Mercantile Exchange settled up $7.50, or 1.1 percent, to $695.80 an ounce. It fell to a low of $686.70 in early trading. Carlos Perez-Santalla at Hudson River Futures said precious metals gained because the ETF markets remained very firm and bullish on prices.
"We've seen some strong buying in the platinum market, which helped drive gold higher. Silver and copper have also seen renewed strength this morning," Perez-Santalla said from the COMEX floor. "It seems that the new ETF that was announced yesterday in London is expected to be very successful, taking more metals off the market," he said.
London-based ETF Securities said on Thursday it would launch physically backed ETFs based on platinum, palladium, gold and silver on the London Stock Exchange. This followed Zurich Cantonal Bank's announcement that it planned to launch ETFs in platinum, palladium and silver by May 10.
"I think that the prospect of more ETFs has supported the entire precious metals complex," said James Steel, analyst at HSBC. ETFs allow investors to gain exposure to commodity markets without worrying about setting up futures trading accounts or taking physical delivery. Sponsors of such funds buy a matching amount of the commodity from the market to keep in bank vaults.
Gold ETFs have accumulated more than 650 tonnes of gold so far, while silver funds have about 4,200 tonnes. Steel also said that the market overreacted on Thursday to the fears that a possible rate hike in China would measurably slow the world demand for commodities, and that this notion had retreated on Friday.
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