UPDATE 4-Gold prices jump on weak dollar outlook
Thursday, November 9, 2006 3:01:10 PM
reuters.com
(Recasts, adds fresh comment, updates prices)
By Pratima Desai
LONDON, Nov 9 (Reuters) - Gold prices jumped on Thursday in anticipation of a weaker dollar in the future and firm oil prices, while expectations of higher physical demand boosted sentiment, analysts said.
Political uncertainty in the United States had persuaded some investors to buy gold ahead of this weeks's election.
Many of those positions were reversed after news that the Democrats won control of the U.S. House of Representatives and on Thursday those short positions were again cut, fuelling the $10 an ounce rally.
"It's been very volatile," a trader said.
"The reversals started this morning and speeded up just as New York came in ... Some of it could have been profit-taking to pay for currency positions that have gone wrong."
He added that some bets on a higher yen against the euro and dollar were being cut.
Spot gold <XAU> was quoted at $624.60/625.60 an ounce at 1545 GMT, below an earlier high of $627.00 and $615.20/615.95 in late New York on Wednesday, when it hit a one-week low of $612.90 an ounce.
Gold and the dollar often move in opposite directions. When the U.S. currency falls it makes dollar-denominated gold more expensive for investors in other currencies.
"The Democratic victory, although it wasn't surprising, probably does point the way to medium-to-longer term dollar weakness because of things like protectionism," said John Reade, analyst at UBS.
"We've seen strong physical demand come back to the market. When people know that the bottom is underpinned it makes them more confident about establishing long positions."
HEADWAY
UBS's one-month and three-month gold forecasts are $640 and $670 an ounce respectively.
Possible moves by the Democrats to protect U.S. firms from overseas competition to cut the country's large trade deficit are seen as a negative for U.S. economic growth in the long run and is one reason behind the softer dollar, analysts said.
"(But) for gold to make much more headway this week though, the dollar is going to have to come under a lot more pressure," one trader said. "A jump in oil prices could give it the momentum it needs."
The dollar was hovering around $1.2800 per euro <EUR=>, near six-week lows, while the euro's <EURJPY=> exchange rate against the yen hit a record high above 151.
Crude oil <CLc1> gained $1.29 to $61.10 a barrel supported by OPEC supply cuts and prospects for further cuts in December.
Gold and oil often move in the same direction. Higher oil prices feed inflation, which investors hedge with gold.
But that link has weakened in recent weeks, since markets started fretting that the U.S. economy could be heading for a hard landing and fled to the safety of gold.
"The weaker macroeconomic environment and the downward pressure on the dollar are supportive for gold," said Michael Widmer, analyst at Calyon.
Support for gold is initially seen at $610, followed by $600, while on the upside, gold needs to consolidate above $630, a major hurdle in recent days, before it can head towards $640.
Other precious metals mostly followed gold's lead, with silver <XAG=> gaining to $12.74/12.81 an ounce from $12.44/12.51 late in New York.
Platinum <XPT=> rose to $1,189/1,194 an ounce from $1,165/1,171, while palladium <XPD=> was steady at $328/333 an ounce from $327/332.
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