A customer examines a selection of gold bars from Swiss manufacturer Argor Hebaeus at the Hungarian bullion dealers AranyPiac in Budapest, Hungary. After yesterday’s rally, gold is still headed for a 24% loss for the second quarter, its biggest quarterly decline since at least 1968.


Reuters/New York/London

Gold surged around 1% in very choppy trade yesterday as heavy short-covering and book-squaring activities on the last trading day of a dismal second quarter lifted the metal after the previous session’s drop.

Silver, which tends to be more volatile than gold, jumped over 4%.

Bullion sharply reversed early losses in New York morning trade despite a lack of macroeconomic news and little dramatic movements in other financial markets.

After yesterday’s rally, gold is still headed for a 24% loss for the second quarter, its biggest quarterly decline since at least 1968.

“There are some people covering shorts and some people taking losses as part of quarterly book-squaring to position for the next quarter,” said Bill O’Neill, partner of commodities investment firm Logic Advisors.

Spot gold was up 0.9% at $1,210.30 an ounce by 10:59 am EDT (1459 GMT), having earlier traded as low as $1,180.71 an ounce, which marked the cheapest price since August 2010.

On Thursday, gold lost 2% and broke below $1,200 an ounce for the first time in nearly three years.

US Comex gold futures for August were down $1.70 to $1,209.90 an ounce, with trading volume already surpassing its 30-day average, preliminary Reuters data showed.

Among other precious metals, silver rose 4.2% to $19.23, rebounding sharply from a near three-year low at $18.19 an ounce.

Bullion has taken a beating — losing as much as 15% or about $200 an ounce — since the beginning of last week when Fed Chairman Ben Bernanke laid out a strategy to roll back the bank’s $85bn monthly bond purchases in a recovering economy. This supports an increase in real interest rates, making gold comparatively less attractive. “Gold has been battered by the Fed’s policy stance, while the change in US real interest rates, which have turned positive in June, has become an element disproportionately negative for gold relative to other commodities,” Standard Chartered analyst Daniel Smith said.

“The next short-term target stands at $1,160, but I think prices will be higher at the end of the year than they are now as the market starts to price in that the Fed’s language will unlikely change from now on.”

Traders said stop-loss orders — automatic sale orders placed at pre-set levels to limit losses — were triggered when gold was sitting on the edge of $1,200. Others said that a lot of funds and institutions are required to close their positions ahead of the end of the quarter, causing heavy liquidation.

Gold is down 25% for the April-June period, its biggest quarterly loss ever, based on Reuters data that dates back to 1968. A close at its three-year lows yesterday would also mean the worst weekly performance since 1983.

Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, were unchanged at near four-year lows for a second consecutive day on Thursday. The fund has recorded unprecedented outflows of 12.26mn ounces so far this year, down 28% to 31.7mn ounces.