LONDON: Gold rose 1 percent on Thursday, snapping three days of losses to climb towards $1,580 an ounce, as the dollar swung back into negative territory versus the euro after a softer-than-expected US manufacturing report.
Confidence in the single currency remains fragile after it earlier hit a near two-year low against the dollar. Dire German manufacturing and business climate data spooked investors already weighing up the risk of Greece leaving the euro zone.
But gold got a lift from International Monetary Fund data showing another rise in central bank gold holdings in April, after the largest purchase in over four years by the Philippines.
Spot gold rose as high as $1,577.50 an ounce and was up 0.8 percent to $1,573.11 an ounce by 1350 GMT, while US gold futures for June delivery were up $24.60 an ounce at $1,573.00.
Prices have been volatile since they hit 4-1/2 month lows last week, as worries of a potential Greek exit from the euro zone and concerns over other bloc members like Spain kept the euro under heavy pressure.
"The euro is a bit stronger this afternoon and that has helped a bit," RBS analyst Nikos Kavalis said. "(But) this is a reactionary move rather than something in its own right. Until we have some more clarity on the European situation, it's hard to imagine a full-scale risk rally, and without that I don't see the sector rallying."
Support for gold held on Wednesday above $1,530. "All three times we've come close to $1,500 over the last year, starting with the end of December, we've had a bounceback," Kavalis said. "It looks like this is a level the market isn't happy to break."
The euro hit session highs against the dollar on Thursday after data showed US manufacturing growth slowed in May, weighed down by recession in parts of Europe.
The correlation of gold to the euro/dollar exchange rate held close to its highest in a month, meaning that a move in the euro was more likely to see an identical move in gold than as recently as two weeks ago.
European investors are also more likely to sell their gold when the euro depreciates against the dollar to earn a higher profit on their currency position by taking profit on their dollar-denominated bullion position.
"The euro fell to levels not seen since Feb. 2010, when gold was trading around $1,100 an ounce," HSBC said in a note. "If gold moved entirely in lockstep with EUR/USD movements, we would expect the bullion market to be much closer to the $1,100 an ounce level."
"That gold now is $460 an ounce higher.. implies it may have some other underlying supportive factors influencing prices."
PHILIPPINES BUYS GOLD
IMF data showed on Friday that the Philippines raised its gold holdings by 32.13 tonnes in March, the largest amount in 3-1/2 years, while Mexico and Ukraine made additions in April, in line with the trend among emerging-market central banks to diversify away from the dollar and the euro.
"We regard the central banks as a stabilising element on the gold market and anticipate increasing buying of gold if its price should fall towards the $1,500 a troy ounce mark," Commerzbank said in a note.
Silver tracked gold higher to rise 2.1 percent to $28.32 an ounce
Platinum imports into Switzerland, a major PGM clearing hub, fell to their lowest in over four years in April, largely due to a steep decline in shipments from top producer South Africa.
This fall was the result of a sharp decline in the recent months in output at most mining companies because of safety stoppages, which in February and March was compounded by a strike at Impala Platinum's Rustenburg mine, the world's largest platinum facility.
Spot platinum, which fell for the last two sessions, was up 0.5 percent at $1,425.49 an ounce, leaving the week-on-week decline to 2.2 percent and the fall for the month to nearly 9.5 percent.
Palladium rose by 0.8 percent to $593.72 an ounce.
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