BLBG:Gold Rebounds From an Eight-Week Low as Price Decline Encourages Purchases
Gold rallied from the lowest level in almost eight weeks as the biggest two-day drop since September spurred more purchases and investor holdings climbed to a record, countering the effect of a stronger dollar.
Immediate-delivery gold climbed as much as 0.7 percent to $1,642.82 an ounce and was at $1,637.10 at 4:23 a.m. in London. Holdings in exchange-traded products rose to 2,360.685 metric tons yesterday, Bloomberg data show. February-delivery gold declined for a third day, losing as much as 2.3 percent to $1,625.30 on the Comex, the lowest price since Oct. 21.
Gold tumbled yesterday after the U.S. Federal Reserve refrained from taking new action to boost growth. Dennis Gartman, an economist who predicted the slump in commodities in 2008, said that the metal may be poised to enter a bear market, and raised the possibility of “wholesale liquidation” of holdings.
“If you’re a gold investor now, you’re torn between two worlds: a recovering U.S. market and Europe falling to pieces,” Tom Price, an analyst at UBS AG, said from Sydney. Investors are “trying to weigh out which one actually dominates the gold price, and for at least the next week, the gold price is going to struggle because of the improving U.S. market outlook.”
Cash gold dropped to $1,622.65 yesterday, the lowest level since Oct. 21, falling a combined 4.7 percent on Dec. 12 and 13 as the dollar rallied. The dollar has advanced 2.6 percent against the euro this week as bullion declined 4.4 percent.
Gold reached a record $1,921.15 on Sept. 6, and to enter a bear market -- typically defined as a drop of more than 20 percent -- would need to drop to less than $1,536.92. The price did fall to less than that level on Sept. 26, before rebounding.
‘Bright Signs’
“I’m bullish on the dollar,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp., a currency margin company. “We can see some bright signs for the U.S. economy.” The precious metal usually trades counter to the U.S. currency.
The U.S. “is swimming in debt but they’re delivering positive growth,” said Price at UBS. “We’re massive gold bulls and our case of an average gold price of $2,000 for next year is based heavily on an underperforming European region, so that’s our primary driver for a higher gold price.”
Gold is still set for an 11th annual gain this year as the European sovereign-debt crisis boosts demand for a haven amid concern that the euro zone may fragment. The price has gained 15 percent in 2011.
Physical gold flows may provide a floor whenever prices decline, Janet Kong, managing director at the research department of China International Capital Corp., wrote in a note today. UBS AG said yesterday its physical flows to India, the largest consumer, on Dec. 12 were the most since Oct. 20.
Spot silver gained as much as 0.8 percent to $31.01 an ounce, after dropping to $30.42 yesterday, the lowest level since Oct. 21. Palladium rose 0.2 percent to $646 an ounce, trimming losses this week to 5.6 percent.
Cash platinum advanced as much as 0.4 percent to $1,480.50 an ounce, rebounding from an eight-week low of $1,466 an ounce, while futures retreated to the lowest price since Oct. 20.
To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net
