Gold price rises on Cyprus worries

Metal on track for biggest weekly rise this year as investors seek safe havens

Investors are looking to gold as a hedge against instability in the euro zone and inflation. Scott Olson/Getty Images

Investors are looking to gold as a hedge against instability in the euro zone and inflation. Scott Olson/Getty Images


Gold traded near a two-week high this morning, underpinned by safe-haven demand on the fear of a potential financial meltdown in Cyprus, which has put bullion on track for its biggest weekly rise in four months.

The clock is ticking for Cyprus to come up with a solution to clinch an international bailout, otherwise it could face the collapse of its financial system and likely exit from the euro zone.

The Cyprus crisis has offered gold a helping hand, after investors had been pulling out of the precious metal and piling into stock markets which have rallied this year on a brighter economic outlook.

Spot gold was little changed at $1,612.96 (€1,250.71) an ounce this morning, after rising to a 3-1/2-week high of $1,616.36 in the previous session.

The metal was headed for a weekly gain of about 1.3 per cent in its third weekly ascent, its biggest weekly rise in four months. US gold traded nearly flat at $1,612.40, on course for a 1.2 per cent weekly gain.

"Gold is likely to stay firm in the short term thanks to Cyprus," said Shanghai CIFCO Futures analyst Li Ning. "Though Cyprus is a small economy, there are concerns about the risk of contagion if the crisis there doesn't get solved properly."

Euro zone finance ministers offered a $13 billion bailout last weekend but demanded a levy on deposits in Cyprus, which shocked investors and triggered worries that similar measures could be imposed on other countries.

Traders and analysts are eyeing key resistance at $1,620 an ounce, a price unseen since February 26th. A break above that level could rekindle enthusiasm in trading.

But there is considerable pressure from the continuous outflow from gold-backed exchange-traded funds. Holdings of these funds are seen as a barometer of investment interest in gold.

Holdings of the SPDR Gold Trust, the world's largest gold ETF, fell 0.902 tonnes from the previous session to 1,221.26 tonnes on March 21st, the lowest since July 2011. The fund is headed for a twelfth week of outflows.

The new Bank of Japan governor is expected to take aggressive steps to kick-start the world's third-largest economy in its first policy meeting early next month, which could support sentiment in gold as a hedge in its role as a hedge against inflation.