Gold rose for a third straight day on Friday after a unilateral cease-fire declared by Libyan leader Muammar Gaddafi failed to calm investor nerves as political tensions remained elevated across the Arab world. Bullion also benefited from a weaker dollar as traders braced for more official action after the G7 countries co-ordinated to intervene on the yen, and as fresh political unrest was reported in Yemen, Syria and Bahrain.
"It's the concern about what would happen in Libya. Will Gaddafi really stick up to the cease-fire? That's probably the only reason why gold's being bid up at all," said Dennis Gartman, author of the Gartman Letter, an investment newsletter. Recently weaker volume suggested, however, gold could lack the conviction to rise further, and Friday's gains were largely driven by the drop in the dollar, Gartman said. Spot gold rose 1.1 percent to $1,418.10 an ounce by 2:58 pm EDT (1858 GMT). The US April contract settled up $11.9 at $1,416.10.
Total COMEX trade was about 15 percent lower than its 30-day average. Lower-than-usual turnover during gold's gains prompted some traders to doubt the metal had momentum to rise further. Non-commercial net long positions, or bullish bets, fell about 9 percent in the week to March 15 as prices weakened, according to the Commitments of Traders report by the US Commodity Futures Trading Commission.
Spot silver rose 2.5 percent to $35.02 an ounce, with volume about one-third lower than its 30-day norm. On the options front, put buying was favoured over calls, as investors combined a strategy to buy puts and sell calls to protect against downside risk. The implied volatility gap between puts and calls, however, has narrowed.
"With everything going on in Libya and Japan, nobody wants to go home short on Fridays," COMEX gold options floor trader Dominick Cognata said. Platinum rebounded after the market fretted about a loss of demand due to car plant closures in Japan earlier this week. Platinum gained 1.1 percent to $1,716.49 an ounce and palladium climbed 3.3 percent to $727.97 an ounce.