Gold buoyed by Greece debt fear; China margins weigh

NEW YORK: Gold held steady at an over three-week high and silver edged up in anemic trade on Monday, buoyed by expectations of further debt woes in the euro zone.

With national holidays in the United States and Britain sapping liquidity, trading volume in US futures was less than one-tenth its norm. In Asia, traders said a hike in margins by the Shanghai Gold Exchange kept sentiment in check.

The focus for now is Europe, where concerns over Greek debt have helped reignite gold's rally after an abrupt collapse in commodity markets at the start of May. For the month, gold is down about 1.6 percent, on track for its first monthly decline in four months.

The European Union urgently worked on a second bailout package for Greece in a race to release vital loans next month and avert the risk of the euro zone member defaulting. Greece's conservative opposition meanwhile demanded lower taxes as a condition for consensus with the Socialist government on further austerity measures.

"Given the current state of political and economic affairs in Europe, is there any reason to believe that at the margin -- and perhaps at the very center -- money shall do anything other than to leave the euro and to gravitate toward gold?" long-time investor Dennis Gartman wrote on Monday.

The answer, he asserted, was negative, noting that both fundamental and technical signals had encouraged him to buy on the dips, adding to his gold holdings in non-dollar terms.

The euro eased on Monday, pulling away from a key chart resistance as uncertainty over Greece's debt crisis kept investors on edge, while the dollar stabilized following a slide late last week.

Spot gold rose $1.56 or 0.1 percent to $1,537.95 an ounce by 2030 GMT after jumping more than 1 percent on Friday. US gold gained $2.80 to $1,539.10

Spot silver rose 0.5 percent to $38.05 an ounce, extending last week's 8.1 percent rise. US silver gained 0.6 percent to $38.10. Silver is down more than 20 percent in May, its worst showing since the midst of the financial crisis in August 2008.

After downbeat US consumer spending and home sales data last week, traders will scrutinize US and German jobs numbers and euro zone inflation figures this week to determine whether they should pare back risk ahead of the end of the $600 billion Treasury purchases (QE2) in June.

SHANGHAI MARGINS ADD PRESS

The Shanghai bourse plans to temporarily increase margins on gold and silver forward contracts on settlement at June 2 and trading limits on June 3, before the market closes for a public holiday on June 6.

"The margin hike in Shanghai Gold Exchange is adding pressure to prices," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.

Fung said $1,500 should offer strong support to gold, and prices are likely to reach $1,600 by the end of the year as investors continue to buy bullion to protect themselves against economic uncertainties.

However, technical analysis suggested that spot gold may retrace to $1,513, said Reuters market analyst Wang Tao.

Shanghai silver forward was trading at 8,334 yuan a kilogram, equivalent to about $39.9 an ounce.

Enthusiasm for silver investment in China, the world's second-biggest gold consumer, has expanded rapidly over the past few months, pushing the trading volume for Shanghai silver forward to 73 million ounces on May, more than three thousand times the volume at the start of 2011.

Copyright Reuters, 2011