Tokyo gold futures rose more than 1 percent to a one-and-a-half-month high on Monday, buoyed by heavy short-covering reflecting a weaker yen but falls in the dollar-based spot price limited gains. The April Tokyo Commodity Exchange gold contract rose as high as 1,489 yen per gram the highest since April 27 as the yen slumped near 109 against the dollar in trade, inducing heavy purchases led by fund operators.
A lower yen raises the value of yen-based commodity prices, including precious metals. "Gold is strong on a sharply lower yen," said Koji Suzuki, manager at Star Futures Securities.
"The strength of the dollar is a bit worrying as it could discourage sentiment in the gold market overall, but the fall in (dollar-based) gold is limited despite the sharp gains for the dollar against the euro," Suzuki said.
The key TOCOM gold contract closed up 17 yen, or 1.16 percent, at 1,485 yen per gram. All other contracts also closed up 17 yen, except for the October contract, which closed up 15 yen.
The dollar-based spot price edged down from its one-month highs in Asia as the US currency rose to a nine-month peak against the euro around $1.2065.
Spot gold was trading at $425.10/$425.85 an ounce, down from $427.00/427.70 in New York on Friday, where it hit a one-month high of $427.70.
The dollar turned bullish after a smaller-than-expected widening of the US trade deficit on Friday. Traders said fund operators have been buying gold, while they were detected to have shifted out of the euro following the recent weakness of the European currency. But spot gold lacked energy to break through closely watched resistance between $428-$429. On Monday's turnover in TOCOM gold was the largest since mid-February.
Volume amounted to 107,937 contracts as of the end of Monday compared with 21,924 lots on Friday. Trading volume in precious metals has been undermined by the introduction in Japan of a new commodity law in May. The law is aimed at tightening rules on sales tactics and accounting.
The tighter accounting rules mean brokerages must boost their cash positions in order to trade in big lots when they wish to trade on their own account in the market, which is seen as a factor behind the depressed volume.
Despite on Monday's surge, traders said it was still premature to say that trading volume would continue to increase in the long run. TOCOM platinum advanced across the board, reflecting the weaker yen and the strength of gold futures.