Gold extended earlier gains on Monday to hit its highest since late February, with some investors drawn to the precious metal's safe haven properties as a radical bailout package for Cyprus shook sentiment in the euro zone. The euro zone agreed on Saturday to hand Cyprus a bailout worth 10 billion euros ($13 billion), but required the country's savers to pay up to 10 percent on their deposits, shaking confidence in banks across the continent.
Spot gold gained 1.2 percent to a fresh high since February 27 at $1,610.81 an ounce and was last seen at $1,603.46 at 1517 GMT, still up 0.7 percent. US gold futures for April delivery also hit a 2-1/2-week high, at $1,610.40 an ounce. They last stood at $1,602, still up 0.6 percent. Societe Generale analyst Robin Bhar said the US market openings gave a further push higher to gold. "There is a bit of a flood into safe havens," he said. "But whether that will last or not, it's still early to say... all the evidence we have now suggests gold shouldn't rally a lot further from here."
Analysts remained cautious as the details of the bailout were still to be unveiled - euro zone finance ministers will hold a teleconference at 1830 GMT - while the market awaited a Cypriot parliament vote on the measure on Tuesday and worried that depositors elsewhere in the euro zone might face levies.
"From a market perspective, people realise that contagion risk is real risk, so probably the deal will be reviewed," ING Investment strategist Koen Staetmans said. "So I think making big moves now is not yet appropriate, but it's clearly something to watch closely." Gold's safe-haven appeal had tailed off dramatically in the past few months - with prices losing 3.2 percent since the start of the year - as investors grew more confident of economic recovery and moved towards assets perceived as higher risk like equities.
A series of positive economic data out of the United States and China and a stabilisation in the euro zone also raised speculation that main central banks could turn off liquidity taps and stop pumping cash into the economies. Less accommodative monetary policies would hurt gold, because higher interest rates encourage investors to take money out of non-interest-bearing assets.
Gold priced in euros rose 1.7 percent to a five-week high at 1,246.23 euros/oz, mostly gaining from the euro weakness against the dollar. The single currency was flat against the dollar, having dropped as low as $1.2882 in the Asian session. Meanwhile, global stock markets also fell as investors took the opportunity to lock in profits after an extended rally last week. The next macro event is a US Federal Reserve policy meeting on Tuesday and Wednesday, which is expected to give clues on the central bank's attitude towards aggressive monetary stimulus. Economists expected the Fed to keep buying bonds for the rest of the year to aid the still frail economic recovery.
Speculators raised net long positions in US gold in the week to March 12 from a more than five-year low of 39,631 contracts to 43,195 contracts, but also increased short bets on gold, data from US Commodity Futures Trading Commission showed. But interest in exchange-traded gold funds remained lukewarm on Friday. Holdings of SPDR Gold Trust, the world's biggest gold ETF, resumed the decline after a two-day pause, down 3.311 tonnes to 1,232.996 tonnes, the lowest since October 2011. Spot silver rose 0.7 percent to $28.86 an ounce.
Platinum was down 0.6 percent at $1,578.74. The metal has returned to trade at a discount to gold on worries over auto demand growth in Europe, which mostly uses platinum loadings in auto catalysts to clean up exhaust emissions. Palladium fell 0.8 percent to $762.01.