Gold Settles Above $1771 as Technicals Trigger Buying

Gold jumped to a three-month high on Wednesday, reversing early losses as bullish technical factors triggered fund buying, while platinum prices hit their highest in five months on supply worries.

Spot gold [XAU=  1775.20    -0.59  (-0.03%)   ] was up 1 percent at $1,775.96 an ounce on Wednesday.

U.S. gold futures [GCCV1  1775.90    4.60  (+0.26%)   ] for April delivery settled up $12.80 an ounce at $1,771.30.

Bullion turned positive late in the session and accelerated gains once it breached technical resistance near $1,765 an ounce, an important area on price charts where two rallies failed since December.

"We are seeing all the funds step in. It (technical buying) is the only thing at the moment that we can pin it on," said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC.

Rate Outlook Supports Gold

In the longer term, gold is expected to continue benefiting from low U.S. interest rates, central bank buying, and strong demand from key markets such as China.

Goldman Sachs reiterated its positive 12-month view on gold on Wednesday. "We expect U.S. real interest rates to remain lower for longer given our U.S. economics team's expectation for U.S. economic growth to remain slow through 2012," it said. "Consequently, we expect gold prices to continue to rise through 2012, reaching $1,940 an ounce in 12 months, and we continue to recommend a long gold position."

Among other precious metals, silver [XAG=  34.29    0.02  (+0.06%)   ] gained 0.15 percent to $34.34 an ounce.

Spot platinum [XPT=  1725.00    5.01  (+0.29%)   ] was up 2.35 percent at $1,723.50 an ounce, while spot palladium [XPD=  719.47    0.59  (+0.08%)   ] gained 1.22 percent to $716.38 an ounce.

Platinum prices rallied to their highest since Sept. 22 in earlier trade at $1,705.50 an ounce, lifted by ongoing unrest at one of the world's biggest platinum mines, Impala Platinum's Rustenberg facility. A violent labor dispute at the mine has already cost the company at least 80,000 ounces in lost output.

Impala said on Tuesday it was hopeful that most of the workforce at its Rustenburg operations would be persuaded by union leaders to return to work.

"We think a slow return to production at Impala's Rustenburg operations over the next month is likely, with total lost output expected to exceed 100,000 ounces of platinum and 45,000 ounces of palladium," said Credit Suisse in a note. "The market does not 'need' those ounces at present: industrial and jewellery demand are both currently subdued, and platinum sponge is trading at a significant discount to ingot."

Nonetheless, platinum narrowed its historically unprecedented discount to around $65 from $230 in January.