(Reuters) Gold steadied around its highest in nearly four weeks on Tuesday, but surrendered earlier gains after a report that Germany could smooth the way for Greece to get a bailout, which prompted investors to seek riskier assets.
The Wall Street Journal reported Germany is considering dropping its insistence on an early rescheduling of Greek bonds to allow for a new package of aid loans to prevent Athens from defaulting on its debt.
The drop in the dollar against the euro did little to whet demand for gold, which usually moves inversely to the U.S. currency, as the resulting improvement in risk appetite left bullion somewhat sidelined.
Spot gold rose to a session high of $1,540.36, its highest since May 4, before pulling back to $1,538.10 an ounce by 1430 GMT, flat on the day. June gold futures were up 0.1 percent at $1,538.10.
“At least to some degree, the sovereign debt issues with Greece and the other peripheral EU countries has been pretty well documented, so it’s not necessarily a surprise for the market,” said HSBC analyst James Steel.
“Gold has been rallying since the middle of May and is actually some sixty-odd dollars higher from the recent low, so it hasn’t done too badly.”
Yet gold is down 1.6 percent so far in May, hovering below a lifetime high around $1,575 touched early in the month and, although it has been a beneficiary of the investor nervousness over Greece, it has struggled to retain its gains.
Silver has fallen by 20 percent this month, platinum is down by nearly 2.5 percent and palladium has shed nearly 2 percent.
Meanwhile, European officials met to draft options for a second bailout package for Greece, with private sector participation still under discussion to help relieve the country of its massive debt burden.
EURO/GOLD IN FOCUS
The euro hit three-week highs against the dollar, before retreating, while gold priced in euros — sometimes used as a gauge to measure investor concern over the euro zone’s debt crisis over the last year, fell 0.7 percent on the day, having touched a record 1,088.11 euros an ounce last week.
The rise in investor risk aversion has translated into greater interest in owning gold, as reflected in last week’s net increase in global holdings of the metal in the world’s largest exchange-traded funds, the first weekly rise in a month.
Gold holdings are still down by over 500,000 ounces this month and down 0.68 pct in the year-to-date, but bullion ETFs have lured in more cash in May than other precious metals.
On the futures markets, speculators increased their holdings of gold for the first time since mid-April last week, according to data from the Commodity Futures Trading Commission, bringing total futures open interest to its highest since April 19.
“It’s crucial for markets to see whether Greece is actually sustainable and whether it can actually obtain the next 12 billion euros that is required for them to meet their funding needs in July,” said Ong Yi Ling, investment analyst at Phillip Futures in Singapore.
“I think silver was going up too fast and within too short a period of time. But I think on a longer-term basis after the sell off, you see that investors are slowly coming back.”
Silver rose 1.1 percent to $38.48 an ounce, having fallen by more than 20 percent in May — its biggest monthly decline since August 2008 — having struck a record $49.51 in April.
Platinum and palladium were both up on the day, benefiting from the pick-up in investor appetite for growth-linked assets.
Platinum was up by 1.7 percent on the day at $1,826.74 an ounce, while palladium rose 3 percent to $777.47.