Japanese gold futures rebounded on Tuesday after suffering early losses as plenty of bargain-hunters bought on price dips based on the metal's healthy technical trends and solid energy prices.
Early rounds of selling aimed at cutting long positions ahead of the weekend meeting of the Group of Seven pushed down the benchmark Tokyo Commodity Exchange gold contract as far as 2,522 yen a gram, the lowest since January 25. But bargain hunters emerged around the lows after seeing the cash price rebound above $650 an ounce.
The key Tocom contract for December delivery closed at a session high of 2,539 yen a gram, up 7 yen or 0.3 percent from Monday's close. As of 0830 GMT gold was trading at $650.90/651.80 an ounce, up from $649.00/649.70 late in the US market. It dropped to a session low of around $646.40 in Asia on Tuesday.
Traders said the long-term outlook is bullish, with bargain-hunting investors eagerly looking for chances to buy. Some dealers expected last week's six-month high above $660 an ounce to be tested over the coming days as the market saw renewed interest from investment funds.
Firmness in oil prices in the last two weeks has been adding support to gold. Stronger energy prices tend to raise demand for gold as an inflation hedge. On Friday, the benchmark Tocom gold contract reached an 8-1/2-month high of 2,569 yen. It has climbed about 9 percent from this year's low of 2,355 yen reached on January 9.
Still, traders were careful about taking fresh buy positions as they were unclear about the direction of the yen ahead of the G7 meeting. "There are plenty of long positions holders stuck above 2,500 yen, which are weighing on domestic gold prices," said Hisaaki Tasaka, market analyst Ace Koeki Co Ltd. "Long-term sentiment remains strong, but the market now looks overbought. A major downward correction is needed to see it climb back again," he said.
Tasaka said Tocom gold could come under further downward pressure, but the key contract should find solid support around 2,450 yen - the level where it started its latest uptrend in mid-January.
Other Tocom precious metals rose on short-covering following falls the previous day. December Tocom silver closed at 521.3 yen per 10 grams, up 4.2 yen or 0.8 percent from Monday. On Friday it reached 529.3 yen - the highest for any benchmark silver contract since September 1985. December platinum futures ended up 26 yen or 0.6 percent at 4,479 yen per gram.