Gold recovers from pullback

Gold bounced up nearly half a percent on Wednesday, after pulling sharply off a record high in the previous session, as worries about euro zone sovereign debt kept market sentiment buoyant.

Spot gold rose 0.4 percent to $1,397.81 an ounce by 0256 GMT, off the all-time peak of $1,424.10.

Gold dropped more than $30 from the peak in the previous session, triggered by a sharp sell-off in U.S. silver futures caused by a 30 percent hike in margins as well as a stronger dollar.

But precious metals seemed to be recovering from the shock, with silver leading the complex with a 1.6 percent gain, as investors, concerned about unstable fiscal situation in Europe and wary of inflation risks lying ahead, continued to buy into the metals.

“Gold tends to be pretty resilient and finds a reason to bounce back,” said Darren Heathcote, head of trading at Investec Australia.

Precious metals were set to test new highs after the initial shock, he added.

But holdings in the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, had been steady over the past two weeks at levels just above 1,290 tonnes.

Usually a stronger dollar suppresses gold prices, but the greenback had risen half a percent against a basket of currencies, while gold stayed in the positive territory too.

“It’s about the euro. Worries about euro zone nations are driving prices. People are wondering if Europe will continue to deteriorate, or if it’s just about one or two countries,” said the Hong Kong-based dealer.

The euro was trading below $1.3800, down almost four percent from last week’s peak around $1.4281, as investors await the result of a government bond auction of Portugal, which is seen by the market a possible candidate for a Greek-style bailout.

Spot gold is expected to rebound to $1,410 an ounce then fluctuate between $1,387 to $1,410 for several sessions before a directional move, said Wang Tao, a Reuters market analyst.
Source: Reuters