Gold hits 3-1/2 month high on weak shares, Indian duty

Reuters
Gold bars are stacked at a safe deposit room of the ProAurum gold house in Munich
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Gold bars are stacked at a safe deposit room of the ProAurum gold house in Munich March 6, 2014. REUTERS/Michael …

By Clara Denina

LONDON (Reuters) - Gold hit 3-1/2 month highs on Thursday on safe-haven buying sparked by worries about Portugal's top listed bank, and after India kept record high duties on bullion that could prompt traders who did not buy gold earlier to return to the market.

Stocks on both Wall Street and Europe fell along with U.S. Treasuries yields and the dollar. The yen, another insurance for investors in times of trouble, hit multi-month highs, after worries about Portugal's Banco Espirito Santo alerted investors to the possibility of a new European banking crisis.

"We did have a strong gold rally during the last period of sovereign risk in Europe, so it's not surprising to see the market reacting like this," said James Steel, metals analyst and senior vice-president at HSBC in New York.

"But to be fair, gold has been trending higher for a while now and there aren't too many sellers to stand in the way with the geopolitical crises of the Middle East and Europe and the Fed's insistence that higher U.S. rates are still way off."

By 1:15 p.m. EDT (1715 GMT), the spot price of bullion was up 0.9 percent at $1,337.40 an ounce, after racing earlier to $1,345.00, its highest since March 19. Gold technicians said the rally was also aided break through of strong chart resistance at $1,334.

U.S. gold futures most active contract GCcv1, delivery in August delivery, rose 1 percent to $1,338.30 an ounce.

Espirito Santo Financial Group ESF.LS, the largest shareholder in Portugal's Banco Espirito Santo, suspended trading in its shares and bonds, citing "material difficulties" at parent company ESI. It was the first significant episode of contagion for European peripheral markets this year, curbing demand at Greece's second debt sale following its 2012 default.

Gold also gained support from India's decision to keep the import duty on gold unchanged at a record 10 percent in the budget on Thursday, forcing jewellers, who were on the sidelines expecting a duty cut, to re-stock. The move drove India's most-traded August gold contract up as much as 3 percent.

"I don't think it's one of those days when there is one single massively positive factor for gold: instead of the many different factors that affect gold prices in some days it just happens that they all turn out to be positive," Macquarie analyst Matthew Turner said.

Other precious metals jumped too, with platinum group metals setting multi-month highs.

Platinum, boosted lately by more demand for the autocatalyst metal from carmakers and also by supply issues faced by major producer South Africa, was up 0.9 percent at $1,510 an ounce. It touched $1,518.25 earlier, a high since Sept. 4.

Palladium rose 0.2 percent to $871.20 an ounce, on course to a 14 straight session of gains. It peaked earlier at $875.60, the highest since February 2001.

Silver rose 1.7 percent to stand at around $21.40 an ounce, after soaring to 21.55, a high since March 17.

(Additional reporting by A. Ananthalakshmi in Singapore; editing by Keiron Henderson and Jane Baird)

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