Forexpros – Gold futures were up for the eighth consecutive day during European morning hours on Tuesday, trading just shy of a two-week high as markets shifted their attention back to Spain’s financial woes amid concerns over surging borrowing costs.
Gold traders were also eying the outcome of the Federal Reserves two-day policy meeting later this week, for clues as to the likelihood of a fresh round of monetary easing, which could potentially hurt the dollar and support gold.
On the Comex division of the New York Mercantile Exchange, gold futures for August delivery traded at USD1,632.95 a troy ounce during early European trade, gaining 0.37%.
It earlier rose by as much as 0.45% to trade at a session high of USD1,634.25 a troy ounce, just below a two-week high of USD1,634.35 a troy ounce hit on June 15.
Gold futures were likely to find support at USD1,559.35 a troy ounce, the low from June 8 and near-term resistance at USD1,642.15, the high from June 6.
Safe haven demand was boosted after the yield on Spanish 10-year bonds surged to a euro-era high of 7.28% on Monday, above the critical 7% threshold which prompted bailouts in Greece, Ireland and Portugal.
The spike in borrowing costs came in spite of efforts to insulate Madrid from the effects of the ongoing sovereign debt crisis by agreeing on a EUR100 billion aid package for Spanish banks.
Concerns that Spanish bond yields could continue to rise emerged as the country was preparing to issue EUR2 billion to EUR3 billion of 12- and 18-month debt later Tuesday and between EUR1 billion and EUR2 billion of bonds due in 2014, 2015 and 2017 on Thursday.
Spain became the fourth euro zone nation to seek a rescue last week. Some investors fear it is only a matter of time before the country requires a full sovereign bailout.
Meanwhile, political uncertainty in Greece further boosted the appeal of the precious metal. Market sentiment found mild support from hopes that Greece’s New Democracy party will form a coalition government with the socialist Pasok party, which would allow Athens to resume negotiations with its creditors on its international bailout deal.
Investors now awaited the outcome of a Group of 20 summit in Mexico, amid hopes it could produce fresh measures to combat the crisis in Europe.
In a statement, G-20 leaders said they will “take the necessary actions” to strengthen the global economy, and if growth weakens substantially, countries without heavy debt loads stand ready to stimulate their economies, according to a draft communiqu? from the summit.
Markets were also eying the start of a two-day Federal Reserve policy-setting meeting, amid growing speculation the central bank will move to stimulate growth in the world’s largest economy.
A growing number of Fed watchers expect the central bank to extend its Operation Twist program, in which it sells short-term bonds to buy long-term ones. The current USD400 billion Twist program is set to expire at the end of June.
Gold gained as much as 15% earlier this year to hit USD1,790 an ounce after the Fed said in January it would keep interest rates near zero until at least late 2014 and indicated that it could introduce a fresh round of asset-purchases.
However, prices have lost almost 9% since late February, amid growing concerns the European debt crisis has been escalating, which has fueled demand for the yellow metal’s hedge, the greenback.
Elsewhere on the Comex, silver for July delivery rose 0.55% to trade at USD28.82 a troy ounce, while copper for July delivery dipped 0.15% to trade at USD3.390 a pound.
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