The euro has recovered from a four-month low against the dollar which resulted in a rise in gold prices of more than 1 percent on Friday after an already big price jump the day before. Silver also had a huge jump rising 1.7 percent to $28.52.
By Jan Harvey
Fri May 18, 2012 10:03am EDT
LONDON, May 18 (Reuters) - Gold rose more than 1 percent on Friday, building on the previous session's hefty gains, as a recovery in the euro prompted fresh buying of the precious metal after prices slid to five-month lows earlier this week.
Spot gold was up 1.1 percent at $1,591.10 an ounce at 1332 GMT, having earlier touched a high of $1,594.10, while U.S. gold futures for June delivery were up $16.50 an ounce at $1,591.40.
Gold posted its biggest one-day gain since Jan. 25 on Thursday in a reversal that has put it on track to end the week 0.7 percent higher, snapping two weeks of losses.
"For the first time in ages yesterday, gold divorced itself from the euro and started to improve on the crosses," said Simon Weeks, head of precious metal at the Bank of Nova Scotia.
"A lot of blame for the move has been laid at the door of (Thursday's weaker than expected)Philly Fed numbers, but I think the market was overcooked on the downside and having held above $1,522 was ripe for a bounce."
However, a lack of major volume in the market meant the move did not change his negative view of gold, he added.
The euro recovered from a four-month lows against the dollar to move into positive territory, taking some pressure off gold, though concerns over a Greek euro exit and instability in the Spanish banking system meant confidence was weak.
Gold bucked the trend in the wider markets to trend lower, with European shares falling 0.6 percent and oil prices slipping to their lowest this year.
The metal's relationship to heightened risk aversion has been rocky since the start of the euro zone crisis. It rose to record highs last year in part because investors were buying the metal as a safe store of value, but as the dollar and treasuries found greater favour as havens, it slipped back along with the euro.
Its price fall to its lowest since January has tempted investors back, however.
"Yesterday, gold defied a stronger dollar, weaker equities, and another raft of negative EU headlines (to rise). It felt like the gold market of yesteryears," UBS said in a note.
"To see a return of gold reacting positively to macro stresses is indeed refreshing, but it is still far too early to make any firm conclusions from here that gold has indeed turned the corner," it added. "Momentum will be key, and follow-through buying will have to kick in to encourage investors to jump in."
"More importantly, gold's reaction function will have to consistently exhibit its safe haven properties, and do so for some time to attract strategic buying."
Holdings of gold-backed exchange-traded funds tracked by Reuters, which issue securities backed by physical metal, edged up 76,000 ounces on Thursday, but remained under the 70 million ounce level they slipped below a week ago.
Among other precious metals, silver was up 1.7 percent at $28.52 an ounce.
The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, touched 56.6 this week its highest since late December, easing back on Friday to around 56 as silver outperformed gold in a rising market.
Spot platinum was up 0.6 percent at $1,455.74 an ounce, while spot palladium was up 0.9 percent at $603.08 an ounce. Both metals underperformed surging gold prices, with the gold:platinum ratio rising to a 3-1/2 month high at 1.09.
As chiefly industrial metals used in autocatalysts, platinum and palladium are more exposed than gold to the economic cycle, and have suffered from a lack of car demand in recent years. Industry players gathered in London from Platinum Week this week were pessimistic that prices would recover soon.
"Ever-tightening margins should reduce the appetite for investment in the sector, and that should, in turn, result in slower production growth," RBS said in a note. "(We) continue to see rising production costs as a key driver of a sustainably higher platinum price in the future."
In a rare positive story for the metal, a senior official of Hong Kong-based jeweller Luk Fook said that China's platinum jewellery market, the world's largest, has great potential for growth as rising wealth fuels luxury product demand. (Reporting by Jan Harvey; editing by Keiron Henderson)
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