US gold futures jumped 2 percent on Wednesday after the previous session's heavy losses, stirred by inflation fears due to a crude oil rally and after a government report showed labour costs rose sharply.
Meanwhile, platinum and palladium contracts posted steep losses on profit taking but were off their session lows. However, traders said the platinum group metals should recoup losses on gold's strength.
"Today is a great buying opportunity after yesterday. This will give ourselves to reach $1,000 very quickly now, and those numbers are very inflationary this morning," said Jonathan Jossen, floor trader in New York, referring to the labour cost data released earlier on Wednesday.
The Labour Department said that unit labour costs, a gauge of inflation and profit pressures under close scrutiny by the Federal Reserve, was revised to show a 2.6 percent rise in the fourth quarter compared with forecasts for an unchanged reading of 2.1 percent.
At 11:09 am EST (1609 GMT), the active gold contract for April delivery on the Comex division of the New York Mercantile Exchange gained $19.70, or 2.0 percent, at $986.00 an ounce, after hitting a low of $960.70 in early sessions. It peaked at $987.60.Rising energy prices increased gold's appeal as a hedge against inflation. US crude futures jumped about $3 to above $102 a barrel after an unexpected drop in crude supplies and following Opec's decision to keep output unchanged.
Gold futures dropped 2 percent on Tuesday following a sharp pullback of crude oil prices. Spot gold was quoted at $984.00/984.90, up from $960.50/961.30 at the close on Tuesday. London bullion dealers fixed the afternoon spot price at $974.50 an ounce.
The active Nymex platinum contract for April delivery was down $45, or 2.0 percent, at $2,222.00. Earlier, it had traded as low as $2,138.10 on profit taking. Spot platinum fetched $2,225/2,235 an ounce. Nymex June palladium declined $11.45, or 2 percent, at $559.00 an ounce. Spot palladium was quoted at $529/534 an ounce.
Comex's May silver jumped 73.0 cents, or 3.7 percent, to $20.570 an ounce, trading between $19.480 and $20.58. Spot silver slid to $20.43/20.48 from $19.71/19.76 at Tuesday's close. London silver was fixed at $19.48 an ounce.