PRECIOUS-Gold rises on Wall St gains; options, Fed in focus

Gold prices rose on Tuesday following Wall Street gains in industrial metals and equities. Gold didn't jump too high, awaiting news from a highly anticipated Fed meeting discussing the future of the economy and what actions the Fed is going to take in the next few months.

By Frank Tang and Jan Harvey
Tue Apr 24, 2012 3:30pm EDT
Reuters

NEW YORK/LONDON, April 24 (Reuters) - Gold prices rose on Tuesday, following gains in equities and industrial metals, but selling pressure capped gains ahead of a U.S. option expiration and on uncertainty over a U.S. Federal Reserve policy meeting.

Bullion, which for most of this year has tracked riskier assets, climbed as U.S. equities rose after strong earnings from bellwether U.S. companies and a mildly encouraging U.S. home sales report. A rally in copper prices also lifted gold.

Trading volume was below average for a third straight session, as investors waited for Fed policy makers to announce the outcome on Wednesday of their two-day meeting.

Price volatility could spike ahead of Wednesday's May COMEX options expiry, as both call and put options investors look to profit from heavy bets at the $1,650 strike price. There are currently around 10,000 lots in calls and around 30,000 contracts in puts at the popular price, traders said.

The holder of a put option has the right, but not the obligation, to sell an asset at the put price.

"Right now, the long-put buyers have the control because they are in the money," said Anthony Neglia, president of Tower Trading and a COMEX gold options floor trader.

"If the put buyers are under-hedged, they are going to buy some gold. Conversely, for the short put sellers, if they are under-hedged, they are going to sell some gold. So we may be trapped in this range," he said.

Spot gold was up 0.3 percent at $1,642 an ounce by 2:31 p.m. EDT (1831 GMT)

U.S. gold futures for June delivery settled up $11.20 an ounce at $1,643.80.

Volume was about 40 percent below its 30-day norm, sharply below average for a third straight day, preliminary Reuters data showed, after it fell to the year's low on Friday.

Traders said that better performance of the U.S. equities, driven by a brighter U.S. economic outlook and subsiding risks of the European debt crisis, has reduced investor interest in the gold trade.

In addition, physical demand from top gold consumer India remained disappointing. Spending on gold at this year's Hindu festival of Akshaya Tritiya, a major gold-buying event, has been subdued compared with the usual splurge.

FED IN FOCUS

Gold investors will closely monitor the language of a FOMC policy statement for the central bank's latest monetary outlook. Fed policymakers are sounding the alarm over a "fiscal cliff" at the end of this year, when scheduled U.S. tax hikes and spending cuts could pose a big threat to the fragile economic recovery.

Gold has declined around $150 in the past two months, as some funds might have reduced bullish bets on gold after a string of positive U.S. economic data dashed hopes of further Fed easing.

The metal hit a 2012 high at $1,790 an ounce on Feb. 29 after the Fed at that time said it would keep interest rates near zero until at least by the end of 2014.

Among other precious metals, silver edged down 0.3 percent at $30.73 an ounce. Spot platinum fell 0.8 percent to $1,514.50 an ounce, while palladium dropped 0.7 percent to $662.97.

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