Gold rose 1 percent on Tuesday after the previous session's tumble, as buying related to options' expiration lifted bullion prices toward the important $1,700-an-ounce option strike price. Bullion, which has lost 5 percent in the past five sessions on global debt worries, was boosted by heavy buying related to the expiry of COMEX December options, which were popular among investors for hedging against futures position or outright betting on bullion prices.
Spot gold gained 1.2 percent to $1,698.40 an ounce by 12:06 p.m. EST (1706 GMT). The price of the underlying gold futures often gravitates toward the major strike prices as options head to expiry, in part because option dealers need to buy or sell futures to ensure they can deliver or receive the instrument if the options expire in the money. At the same time, options owners often try to drive futures into the money before expiration.
The December COMEX option was by far the most popular month and $1,700 strike had one of the highest open interest among all the strikes, with around 6,500 lots, Reuters data showed. Even though the traditional safe-haven gold has taken to follow the stock market recently, uncertainty in the eurozone underpinned buying as the region's demand from banks from central funding surged to a two-year high on Tuesday. On Monday, it lost 2.5 percent for its worst drop in nearly two months, as a global market maelstrom rattled by eurozone debt fears and the apparent inability of US politicians to reduce government debt by $1.2 trillion.
US December gold futures rose $20.40 to $1,699 an ounce. Volume was in line to exceed its 30-day norm for a fourth straight session, preliminary Reuters data showed, reversing a recent slower trading pace. Despite Tuesday's gains, gold's technical outlook remained vulnerable after it broke below its 100-day moving average in the previous session. "Gold looks terrible on the chart and it needs to hold support between $1,693 and $1,695 an ounce," said COMEX gold options floor trader Jonathan Jossen.
The next major support for gold will be its 200-day average at around $1,595 an ounce, analysts said. Silver rose 3 percent to $32.58 an ounce, recovering from a one-month low of $30.63 hit in the previous session. Platinum rose 0.9 percent to $1,559.75 an ounce, and palladium gained 1.7 percent to $594.50 an ounce.