Gold heads for biggest weekly rise in 4 months on Cyprus

Gold heads for biggest weekly rise in 4 months on Cyprus - Gold traded near a 3-1/2-week high on Friday, underpinned by safe-haven demand on the fear of a potential financial meltdown in Cyprus, which has put bullion on track for its biggest weekly rise in four months.

The clock is ticking for Cyprus to come up with a solution to clinch an international bailout, otherwise it could face the collapse of its financial system and likely exit from the euro zone.

The Cyprus crisis has offered gold a helping hand, after investors had been pulling out of the precious metal and piling into stock markets which have rallied this year on a brighter economic outlook.

Reuters/Reuters - Gold biscuits are displayed inside a jewellery showroom in Hyderabad April 11, 2012. REUTERS/Krishnendu Halder/Files

"Gold is likely to stay firm in the short term thanks to Cyprus," said Li Ning, an analyst at Shanghai CIFCO Futures.

"Though Cyprus is a small economy, there are concerns about the risk of contagion if the crisis there doesn't get solved properly."

Euro zone finance ministers offered a $13 billion bailout last weekend but demanded a levy on deposits in Cyprus, which shocked investors and triggered worries that similar measures could be imposed on other countries.

Spot gold was little changed at $1,613.90 an ounce by 0142 GMT, after rising to a 3-1/2-week high of $1,616.36 in the previous session. The metal was headed for a weekly gain of about 1.4 percent in its third weekly ascent, its biggest weekly rise in four months.

U.S. gold traded nearly flat at $1,613.30, on course for a 1.3 percent weekly gain.

EYES ON KEY RESISTANCE AT $1,620/OZ

Traders and analysts are eyeing key resistance at $1,620 an ounce, a price unseen since February 26. A break above that level could rekindle enthusiasm in trading.

"The slow movement in prices has really drained the interest in the market," said a Hong Kong-based trader.

"If we can break through $1,620, more people will take a look at it and think maybe there will be some momentum."

But there is considerable pressure from the continuous outflow from gold-backed exchange-traded funds. Holdings of these funds are seen as a barometer of investment interest in gold.

Holdings of SPDR Gold Trust, the world's largest gold ETF, fell 0.902 tonnes from the previous session to 1,221.26 tonnes on March 21, the lowest since July 2011. The fund is headed for a twelfth week of outflows.

Adding to the headwind, a string of U.S. data on Thursday, including on the labour market, factory activity and home sales, pointed to a growing momentum in the U.S. economy, diminishing gold's appeal as an investment vehicle during time of economic and political distress.

Meanwhile, the House of Representatives eliminated the threat of a government shutdown next week.

The new Bank of Japan governor is expected to take up aggressive tools to kick-start the world's third-largest economy in its first policy meeting early next month, which could help support sentiment in gold, a hedge against high inflation outlook brought on by rampant cash printing of central banks.

"The bar is very high now for people to buy gold based on the idea that central banks are being overactive," said the Hong Kong-based trader. "But there is still logic to the argument that it's going to be gold supportive going forward." ( Reuters )