Gold staged a dramatic mid-session recovery in heavy trade on Wednesday, rebounding more than $30 an ounce after sliding earlier along with risky assets, then jumping as safe-haven buying returned after a technical bounce above the key support level of $1,530 an ounce.
Some traders suggested that bullion, which has traded with riskier assets like equities for much of this year, may have found a safe-haven bid again. They noted that its rebound came on a day when equities, crude oil and other commodities tumbled, while the dollar and U.S. Treasuries rallied on jitters about the mounting euro zone debt crisis.
"This morning's reversal is indicative that people are starting to come to grips with the fact that there isn't any fast and easy solution in Europe. And if things start to really get out of hand in Spain and Italy, that means gold can catch a bid," said James Dailey, portfolio manager of TEAM Financial Asset Management.
Bullion investor sentiment remains fickle as the price of gold has lost $100 in the last four weeks. It was down 6 percent in May, its biggest monthly decline since December.
The rebound on Wednesday brought gold back to about where it stood at the end of 2011.
Spot gold was up 0.7 percent at $1,565.30 an ounce by 2:28 p.m. EDT (1828 GMT), having hit a two-week low of $1,531.49.
U.S. COMEX gold futures for June delivery settled up $14.70 an ounce at $1,563.40, with volume strong for a second straight day at a pace that nearly doubled its 30-day average, preliminary Reuters data showed.
Tuesday's COMEX trading volume hit an all-time high at 484,721 lots, surpassing the previous record of 483,429 lots registered on Aug. 24, 2011.
However, Tuesday's turnover included Globex electronic trading volume between Sunday evening and the U.S. Memorial Day holiday on Monday. Tuesday's figure was also inflated by active position rolling from the June to August contracts before the June delivery period.
Earlier this year, the metal had gained 15 percent after the U.S. Federal Reserve said it would keep interest rates near zero until at least late 2014.
Since then, however, investors have shunned gold due to a lack of economic stimulus from central banks. The previous session, the safe-haven metal actually fell more than other commodities on jitters surrounding the European sovereign debt crisis.
"Gold did function as a flight-to-safety vehicle, but only to a small degree and we can very easily test those lows again tomorrow or the next day," said Bill O'Neill, partner at commodities wealth manager LOGIC Advisors.
"There was still not much vitality and we still don't see any speculative fervor," O'Neill said.
Among other precious metals, silver rose 0.7 percent to $28.02 an ounce. Platinum was down 1.8 percent at $1,399.25 an ounce, while palladium edged up 1 percent at $601.97 an ounce, as both platinum group metals followed industrial metals which fell sharply on economic concerns.
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