TECHNICALLY oriented buying helped push gold futures sharply higher in New York, with the impetus coming from improved risk appetite as shares rose early in the session, a weaker US dollar and higher crude oil prices.
Most-active February gold rose $US34.60 to settle at $US808.80 an ounce on the Comex division of the New York Mercantile Exchange.
Initially, some of gold's strength appeared to be tied to an increased likelihood that US automakers may get a congressional bailout, said Tom Pawlicki, analyst with MF Global.
Thus, traders appeared willing to take on more risk, and this was also reflected in other markets, including equities and currencies, he explained.
"Stocks are up, so gold is up," says Dominick Cognata, broker with BCT Trading on the Comex floor. "That's been the trend. Also, the euro is up and the US dollar index is down."
Shortly after gold closed, the Dow Industrials were up by around 65 points but had been up by as many as 187.81. The euro rose as high as $US1.3050, its strongest level against the greenback since November 26 and well up from $US1.2927 late in the previous session. Shortly after gold floor trading closed in New York, the US dollar index was down 0.556 point to 85.281.
Carlos Sanchez, analyst with CPM Group, cited other factors as well. There were reports of strong physical demand on the recent pullback to the area around $US740 to $US750, he said.
And technical buying appeared to set in, especially as the futures accelerated above the $US780 area. The market moved above the psychological $US800 level for the first time since December 1.
"You have the US dollar retreating sharply," Mr Sanchez said. "And you have an up-tick in oil prices."
Gold is also still seen as a safe haven, especially with yields on short-term Treasury markets around zero, said Mr Sanchez and Gijsbert Groenewegen, managing partner of Silver Arrow Capital Management.
"That is indicating fear in the market," Mr Groenewegen said.
In fact, amid the fears of recession, he pointed out that gold has held up far better than crude oil, one of the bellwethers for the commodities complex.
Nymex nearby crude lost roughly two-thirds of its value from a record high of $US147.27 a barrel this northern summer to around $US45. Meanwhile, spot gold lost roughly one-fifth of its value from near $US1030 an ounce this spring to the $US800 region.
Mr Sanchez looks for a wide range in gold over the next several months.
The next upside resistance may lie around $US820 to $US830, he said.
Some profit-taking could push prices lower again. There is also potential for losses on any further sell-offs in equities, such have occurred a number of times this fall, he said. "That's still a possibility, given that it happened in September, October and November," he said.
Yet, Mr Sanchez said he looks for gold to eventually work higher over the next six months. There is likely to be further demand for safe havens such as gold and Treasury products amid the ongoing economic and financial uncertainty, he said.
But despite sharp run-up in the latest session, MF Global’s Mr Pawlicki looks for the metal to be held back in the next two quarters.
Mr Pawlicki noted that many gold advocates have cited expansion of the money supply as a factor likely to lead to inflation. But at the moment, he pointed out, short-term yields are near zero. And, he said, Treasury Inflation Protected Securities are only factoring in annual inflation of roughly 75 basis points per year over the next decade.
"The only way to achieve that is to have a couple of quarters of negative inflation, or deflation," Mr Pawlicki said.
He added in a research note that "inflation has yet to be seen in any government data and that the buzzword at the moment is deflation. In fact, money markets are currently exhibiting all the characteristics of a liquidity trap."
