By Marcy Nicholson and Jan Harvey
NEW YORK/LONDON (Reuters) - Gold jumped more than 2 percent on Monday above $1,200 (75,954 rupees) an ounce, on track for its biggest one-day rise since January as the rally had some dealers scrambling to cover short positions and the May options expiry triggered more buying.
The more volatile silver market rallied 5 percent, also on track for its biggest surge since January, supported by the gold market.
Spot gold > was up 2.1 percent at $1,203.30 an ounce at 2:56 p.m. EDT, well above the prior session's five-week low. U.S. gold futures
"It's quite undervalued and we've had a long period of consolidation around the $1,200 mark," said Mark O'Byrne, research director of bullion dealer GoldCore, noting that the breach of the $1,200 level spurred additional technical buying.
O'Byrne said that while there were several factors spurring the session's rally, short-covering could be the primary driver
Options-related buying also buoyed prices with U.S. May options
The spot market jumped around $8 within a five-minute span shortly after 10 a.m. EDT, when technical buyers lifted prices above the 50-day moving average.
The dollar <.DXY> fell to a three-week low against a basket of currencies and may have forced "reluctant bears" out of their bearish positions, Fawad Razaqzada, technical analyst for forex.com, said in a note.
"Gold's technical outlook appears more constructive all of a sudden," wrote Razaqzada.
Investors will watch the Federal Reserve's policy statement on Wednesday for clues on the timing of a U.S. rate increase. Signs that policy will be tightened sooner rather than later could pressure gold.
"Market consensus does not expect the first rate hike to be announced at this week's meeting, but (Fed) comments are likely going to be closely watched especially in light of Q1 GDP, which is also due to be released this Wednesday," UBS said in a note.
Physical gold demand in the major Asian markets was positive after last week's price fall, dealers said, with Shanghai premiums moving up towardS $4 an ounce.
Spot silver > was up 4.4 percent at $16.38 an ounce. Spot platinum > was up 2 percent to $1,144.85 an ounce and palladium > was up 1.1 percent at $778.80 an ounce.
(Additional reporting by A. Ananthalakshmi in Singapore, editing by William Hardy, Susan Fenton and David Gregorio)
