Gold futures have risen to a three-week high as worries about Europe’s financial system lifted demand for the metal as a safe-haven investment.
The most-actively traded contract, for February delivery, on Tuesday settled up $US6.70, or 0.4 per cent, at $US1,611.30 a troy ounce on the Comex division of the New York Mercantile Exchange, the highest settlement since February 26.
A series of reports on Cyprus’s fraught bailout negotiations pushed gold to intra-day highs in the hour before the close of Comex trading.
The move followed a drop in the euro to the lowest level against the US dollar since late November, after separate reports that the Cypriot finance minister had resigned and that the country’s ruling party would abstain from a parliamentary vote on the bailout.
As part of a rescue package proposed by the European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF) over the weekend, Cyprus would levy a tax on deposits held by customers of banks on the Mediterranean island.
The proposal raised worries that investors elsewhere in the euro zone may lose confidence in their local banking system.
“It’s a pretty tense situation over there,” said Bill O’Neill, a principal with commodities advisory firm Logic Advisors.
“That’s giving gold a boost.”
Some investors turn to gold as a refuge when they are wary of holding other assets.
Platinum and palladium slumped on Tuesday on the EU worries that hit other industrial commodities, along with worry about demand for the precious metals from Europe’s struggling auto sector.
New-car registrations in the EU, a proxy for sales, fell 9.5 per cent during the first two months of 2013 from the previous year’s already-low levels. Platinum and palladium are both used primarily in auto catalysts, which scrub exhaust from automobiles.
Europe accounts for about half of global demand for platinum in auto catalysts, and 30 per cent of palladium catalyst use.
“The data continues to point to a struggling consumer in Europe and, by extension, struggling demand” for platinum and palladium, Standard Bank analyst Walter de Wet said in a note.
Platinum for April delivery, the most-actively traded contract, retreated 1.5 per cent to settle at $US1,555.40 a troy ounce on the Nymex, a 2013 low for the benchmark contract.
Palladium for June delivery slumped 3.9 per cent to $US735.20 an ounce, a two-week low.
Earlier this year, prices of both metals had surged on expectations of tight supplies from South Africa, the largest platinum producer and No 2 palladium-producing country.
While the risk of supply shortfalls remains, de Wet said, the global market is still too well supplied for lofty prices to be sustained.
Traders will likely look ahead to Wednesday’s conclusion of a two-day Federal Reserve policymaking meeting.
Some market watchers have speculated that a recovering US economy would spur the Fed to pull the plug on its easy-money policies sooner than investors had anticipated.
The Fed’s efforts to boost the amount of cash in the financial system, along with similar programs deployed by other central banks, had helped propel gold to record highs in recent years.
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