June 19, 2011 / 13:32 IST
Gold rose nearly 1% on Friday, notching its biggest one-day gain in three weeks, as a sharp dollar drop amid an outline agreement to aid debt-burden Greece boosted investor appetite across the board.
A string of recent lackluster US economic data, worries Greece's debt crisis may escalate and uncertainty related to US debt ceiling talks also lifted the metal for a small weekly gain. Bullion is up nearly 5% in the past 30 days.
Gold accelerated gains after mixed US data point to a wobbly economic recovery. US consumer sentiment worsened more than forecast in June on continued economic pessimism, but a key measure of future US economic activity rose more than expected in May to a record high.
"We are seeing a return to risk as the equity market was up and the dollar is down. Obviously, gold is reacting to that well," said David Meger, director of metals trading at Vision Financial Markets.
Spot gold was up 0.6% to USD 1,536.89 an ounce by 2:36 pm. EDT (1836 GMT), its strongest one-day rally since May 27 when it surged 1.1%.
US August gold futures settled up US 9.20 at USD 1,539.10 an ounce, after trading between USD 1,523.20 and USD 1,543 an ounce.
Trading volume was almost half of its 30-day average, preliminary Reuters data showed, consistent with recently lower levels as investors switched their focus on the equity markets. Silver was up 0.8% at USD 35.78.
Even as gold benefits from a disappointing US economic outlook, the metal has failed to breach its record high USD 1,575 set in early May. Technical selling, a firm dollar combined with sliding crude oil prices have kept gold from rising further.
On Friday, investor sentiment improved after Greece's embattled prime minister replaced his finance minister to force an unpopular austerity plan, and as the euro rose on hopes for a new Greek aid package after Germany and France pulled together on a rescue approach.
Bullion also drew support from worries over a European debt contagion. Moody's placed Italy's credit rating on review for possible downgrade.
US debt talk in focus
Participants of the gold market also focused on development over talks to reach a deficit-cutting agreement among US lawmakers also underpinned gold.
The deal would allow Congress to raise the USD 14.3 trillion US debt limit before Aug 2, when the Treasury Department has warned it will run out of money to pay the government's bills, a development that could disrupt the economic recovery.
Negotiators said on Thursday they had tentatively agreed on a number of cuts and are now gearing up for tough trade-offs that could lead to trillions of dollars in savings. Persistently low US interest rates should also help gold, analysts said.
"The weakness in the US economy shall give rise to concerns on the part of the Fed that more monetary stimulus to be brought forth, thus raising the prospects of QE3 once again," said independent investor Dennis Gartman.
The end of a USD 600 billion US government bond-buying program, or the second round of quantitative easing dubbed as QE2, this month is also fueling economic worries.
Among platinum group metals, platinum was down 0.1% at USD 1,751 an ounce, while palladium slipped 0.9% to USD 745.72 an ounce. For the week, palladium was down more than 6% on worries over the pace of economic recovery.
