Tokyo gold futures rebounded on Tuesday as short-covering was prompted by a recovery in spot bullion prices, but gains were limited due to softer oil prices and uncertainty about the direction of the currency market.
The benchmark June 2007 gold contract on the Tokyo Commodity Exchange settled up 16 yen or 0.7 percent at 2,337 yen per gram after trading between 2,310 and 2,340. The market dipped in trade tracking losses in New York.
But it soon reversed course as short-position holders bought back contracts when TOCOM prices neared 2,300 yen. Short covering of TOCOM gold accelerated in the afternoon session as the spot gold market bounced back on bargain hunting by investors.
But June gold failed to regain a one-month high set last week at 2,370 yen. "Gold was blocked at the upside as oil prices retreated further from a record high," a Tokyo broker said. Uncertainty about the currency market's direction also made Japanese investors cautious about buying TOCOM gold, he added.
The yen crawled back toward a one-month high against the dollar on Tuesday, buoyed as the Bank of Japan appears set to raise interest rates this week for the first time in six years.
The BOJ is widely seen bumping up rates to 0.25 percent from virtually zero, but many market players are unsure whether the yen will benefit much because rates in Japan are likely to remain well below those in the United States and the euro zone.
The dollar slipped to 114.10 yen from around 114.30 yen late in New York trade. But the US currency was still up from the one-month low of 113.45 yen struck on electronic trading platform EBS on Monday.
A higher yen against the dollar has the effect of lowering the value of yen-based gold, although it is potentially positive for prices of dollar-based spot gold, which is seen by investors as an alternative to dollar-based financial assets.
Spot gold was quoted at $627.00/628.00 an ounce, up from $624.00/625.50 in late New York on Monday. Oil eased on Tuesday, falling for a fourth session on extended profit-taking from last week's record high and hopes of progress towards resolving Iran's atomic stand-off when Iranian and EU officials meet later in the day. In the platinum market, TOCOM's benchmark June 2007 contract ended up 62 yen per gram at 4,468 yen, buoyed by short-covering after it tumbled by the daily price limit of 100 yen on the previous day. Spot platinum was quoted at $1,230/1,235 an ounce, up from $1,219/1,225 in late New York.