Gold bars Japan April 2013
Gold bars in Japan. Reuters

Gold stayed near a three-and-a-half month high as an incipient funding crisis at Portugal's BancoEspirito Santo triggered safety-seeking flows, and weighed on global risk appetite.

Investors sought safety in the dollar and the yen in addition to the precious metals complex but the broad dollar strength failed to prevent a gold rally.

The yellow metal rallied to as high as $1344 on 10 July, its highest since 17 March. It has been on a rising trend since the start of June and the dovish FOMC on 18 June aided the confirmation of the reversal of the downtrend since mid-March.

Shares of Banco Espirito Santo plunged more than 17% on Thursday, reflecting market worries that the Portuguese situation if worsens will trigger risk aversion contagion across Eurozone and even the global markets.

The Portuguese central bank's word of guarantee after Espirito Santo's parent company missed debt paybacks had failed to ease investor concerns.

Technical Outlook

Gold has formed a 'flag pattern' on the daily chart after the June FOMC and the Thursday's jump made the upside break of the 'flag'.

The metal has failed below the $1345 resistance now but it doesn't seem to be a big target as long as the $1315 support stays. Further north, gold has targets at $1355 and $1370 before retesting the 17 March high of $1392.

On the downside, a break below $1315 will weaken the momentum gained after the flag break and will find next support at $1300 ahead of $1275, the 23.6% Fibonacci retracement of the March-June selloff.

At 7:33 GMT, spot gold traded at $1335.92 from the previous close of $1335.32.

Gold Daily
Gold DailyIBTimes UK/FXStreet