Gold edged lower in choppy trade on Tuesday, tracking equity and commodity markets, as selling related to an option expiration and technical weakness erased the metal's early gains. Traders said that some disappointed futures investors sold as current prices were around $40 or more than 2 percent below the popular $1,800 call strike at the US COMEX October gold option expiration at end of business Tuesday.
"Today is a wild-card type of day where anything could happen. It's so quiet so the market are going to react to any news out there," said George Nickas, commodities broker at INTL FCStone. News of negative headlines out of Europe rekindled fears about the region's three-year-old debt crisis. The gold market was still underpinned by news earlier in the day that South Korea and Paraguay both significantly added gold to their reserves in July, highlighting strong interest in gold among the official sector.
Spot gold inched down 0.1 percent to $1,762.20 an ounce by 12:51 pm EDT (1651 GMT). The metal hit a near-seven month high at $1,787.20 an ounce last week, but has since met technical resistance to break above this year's high at $1,790.30. US COMEX gold futures for December delivery were up 20 cents at $1,764.80 an ounce, with trading volume on track to finish below its 250-day average, preliminary Reuters data showed.
COMEX futures' open interest, which measures outstanding long and short contracts, rose to a one-year high of 490,744 lots as of Friday. Open interest in US gold futures has gained more than 25 percent in the past 30 days. "Whether you're looking at physical flows into ETFs or the options market, activity has clearly been on the bullish side, and that will see prices move higher as we go through the fourth quarter," said Credit Suisse analyst Tom Kendall.
Data from the International Monetary Fund on Tuesday showed South Korea raised its holdings of gold by nearly 16 tonnes in July. The country has doubled its bullion reserves in just one year after being one of the largest purchasers of gold in 2011. Paraguay also raised its reserves in July from a few thousand ounces to more than 8 tonnes. So far this year, central banks have added a net 262.1 tonnes to their reserves, compared with 203.4 tonnes in the first eight months of 2011.
Private investors have also added to their holdings of gold through exchange-traded funds backed by physical metal, which now hold a record 74.1 million ounces. In other precious metals, silver edged down 0.3 percent to $33.84. Platinum gained 0.6 percent to $1,624.74 an ounce, while palladium was down 0.4 percent on the day at $638.47 an ounce. Platinum group metals rebounded, after palladium's biggest one-day drop in six months on Monday, as platinum output appeared to return to normal in top producer South Africa.
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