Gold set for 1 pct weekly drop; options, Fed eyed

Fri Apr 20, 2012 1:02pm EDT
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By Frank Tang and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold stayed nearly flat in thin trade on Friday, on track to log declines for two of the past three weeks as investors took to the sidelines ahead of a key U.S. option expiration and a Federal Reserve policy meeting next week.

The metal inched down despite usually bullish factors including a weaker dollar, an oil rally and gains in U.S. equities on better-than-expected results from General Electric (GE.N: Quote) and Microsoft (MSFT.O: Quote).

Option traders said gold prices could gravitate toward the $1,650 call strike ahead of next week's expiry of COMEX May options. Open interest for the popular strike has nearly doubled over the last 30 days despite dwindling volume in futures, dealers said.

"There are over 12,000 lots (1.2 million ounces) of open interest on the COMEX expiry next Wednesday for the $1,650 strike," TD Securities precious metals analysts said in a note.

"This is clearly starting to draw market interest and will likely mean the price does not deviate significantly away until expiry," the note said.

Spot gold edged down 0.1 percent to $1,641.39 an ounce by 11:42 a.m. EDT (1542 GMT).

This week, bullion has held within its narrowest weekly range in more than a year. It is on track for a 1 percent weekly decline following a four-day drop earlier in the week.

U.S. gold futures for June delivery were up $1.30 at $1,642.70 in extremely low trading volume.   Continued...

Gold Bullion from the American Precious Metals Exchange (APMEX) is seen in this picture taken in New York, September 15, 2011. REUTERS/Mike Segar