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Gold futures climb to 3-week high on Cyprus bailout uncertainty

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Investing.com - Gold futures climbed to a three-week high during European morning hours on Monday, as the precious metal regained its role as a safe-haven asset amid concerns a controversial bailout plan for Cyprus will lead to a flare up in the euro zone's sovereign debt crisis.

On the Comex division of the New York Mercantile Exchange, gold futures for April delivery traded at USD1,602.50 a troy ounce during European morning trade, up 0.6% on the day.

Prices rose by as much as 0.9% earlier in the session to hit a daily high of USD1,607.50 a troy ounce, the strongest level since February 27.

Gold prices were likely to find support at USD1,560.60 a troy ounce, the low from March 8 and near-term resistance at USD1,614.40, the high from February 27.

On Saturday, the European Union and International Monetary Fund reached an agreement on a EUR10 billion bailout for Cyprus. In exchange for the rescue money, international creditors would impose a one-time tax of 6.75% on all bank deposits under EUR100,000 and 9.9% over that amount.

The agreement marked the first time since the onset of the debt crisis that depositors have been forced to take a haircut in return for financial aid and triggered a run on cash machines in Cyprus over the weekend, raising worries it could also spark an exodus of capital from fragile European economies.

The parliament in Cyprus was to vote on whether to approve the tax proposal later in the day. If the vote was defeated media outlets in Cyprus said banks could remain closed on Tuesday, following a public holiday on Monday, to avoid mass withdrawals.

The news prompted investors to shun riskier assets, such as stocks and industrial commodities, and flock to traditional safe haven assets like gold and U.S. Treasuries.

The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was up 0.6% to trade at 82.89.

Gold traders also looked ahead to Wednesday's Federal Reserve policy statement, amid speculation over an earlier-than-expected end to the bank's asset purchase program.

Moves in the gold price this year have largely tracked shifting expectations as to whether the Fed could bring quantitative easing to an end this year.

Fed Chairman Ben Bernanke is to give a press conference after the release of the policy statement.

Elsewhere on the Comex, silver for May delivery was little changed to trade at USD28.85 a troy ounce, while copper for May delivery plunged 2.1% to trade at USD3.444 a pound.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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