Gold closed higher Thursday with the help of short covering and technical strength, traders and analysts said.
The metal was boosted early in the day when the dollar fell and crude oil rose, factors that normally support gold. But while gold pared its gains, it nevertheless finished higher even when crude oil and the dollar reversed course.
"The dollar was weaker early, and that was an early impetus for the gold to move higher," said Dave Meger, senior metals analyst with Alaron Trading. "Continuation buying was seen on a short-covering basis."
Additionally, crude oil was initially lofty.
"Interestingly enough, the energies fell back late in the day, so you did see some profit-taking in both gold and silver, but they still ended up significantly higher on the day," Meger said. "There was very active buying today."
Larry Bilello, managing director of B&C Trading, also cited short covering early in the session and said buying was encouraged when June topped $879 an ounce. Furthermore, he said, it would be bullish on the charts if the metal finished above this, which it did.
June gold rose $13.50 to $880 on the Comex division of the New York Mercantile Exchange. As pit trade was closing, the June contract at the Chicago Board of Trade was up $12.60 to $879.50.
July silver rose 7.2 cents to $16.685. As it was closing, CBOT July silver was up 7.8 cents to $16.686.
June gold traded as high as $888.50 and July silver to $17.04 before both backed off.
"Crude oil came back by $4," said a floor trader about the impetus for the pullback.
June crude initially traded as high as $126.64 a barrel, threatening the Nymex record of $126.98 hit two days ago. But as gold was closing, June crude was at $121.97, down $2.25 for the day.
The floor trader reported that it appears funds were buying a basket of commodities early in the day. But as that dried up, some trade selling appeared to emerge in gold, he continued.
Meanwhile, the dollar index was up 0.031 point to 73.430 shortly after gold's close, after earlier trading down as far as 73.034.
Some of the early-day pressure on the dollar that helped gold was the result of strong economic activity out of Germany and France, reducing the odds of a European Central Bank rate hike, said Jeffrey Nichols, managing director of American Precious Metals Advisors. Germany's first-quarter gross domestic product jumped 1.5% from the fourth quarter, roughly double the rate economists were forecasting.
Furthermore, Nichols and Tom Winmill, portfolio manager with the Midas Fund, described the soft U.S. data as supportive for gold due to its potential impact on the dollar.
"I believe there is a view maybe we're not done with rate cutting," Winmill said. "And if we're not done with rate cutting, it could be very hard on the dollar. As the dollar gets weak, the alternative currency steps up - gold."
U.S. April industrial production fell 0.7%, worse than the consensus forecast for a 0.4% fall. U.S. jobless claims rose 6,000 to 371,000 last week, and continuing claims lasting for more than one week stayed above 3 million for the third straight week, a sign that the unemployed are having trouble finding work. The New York Fed's Empire State manufacturing survey fell to -3.23 in May when expectations had been for a 0.0 reading. |
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All of this comes after a benign consumer Price Index report on Wednesday, Nichols added.
"That gives the Fed a little more latitude to be concerned about economic weakness and less concern about inflation," he said.
Yet, Nichols said, said he is among those who believe actual inflationary pressures are more than what is reflected by the government's official data, a factor that could support gold down the road.
Winmill said his fund tends to favor gold over silver. The latter relies more on industrial applications, he explained.
"Silver is currently in surplus in our view, according to recent figures," he said, suggesting demand has been held back some by economic weakness. "Gold doesn't have that problem of industrial application that will go down because of reduced economic activity. So we favor gold over silver."
Nevertheless, he cautioned that the second quarter is a seasonally weak period for gold. Most gold jewelry tends to be sold in the fourth and first quarters, due to a number of gift-giving holidays around the world, he said. Thus, much of this demand tends to be deferred until the third quarter.
"I'd be cautious on a one-day spike in gold prices," he said.
Gold is consolidating after a pullback from record highs earlier this spring, yet it remains roughly $200 above where it was back in September. Therefore, if not for the pullback from this spring's highs, Nichols suspects analysts would be focused on what a "good performer" it has been since autumn.
"A lot of this has to do with point of view," he said. "This might have gone too far too fast, and we're now in a period of consolidation and base-building, with churning between $860 and $890, a sign that gold is moving from weaker hands into stronger hands."
Meanwhile, July platinum rose $37.80 to $2,076.90 an ounce.
"You could probably attribute that to some bargain hunting," said one trader. "Overnight, you saw a sell-off on Tocom (Tokyo Commodity Exchange), with some a couple of losses hit. The (July) contract fell back to around $2,001.
"I think you saw a lot of bargain hunters and end users come in and scoop up the metal, giving it some upside support."
Platinum also benefited from the firmer tone in gold, he added.
June palladium lagged but rose $2.90 to $440.60.
"It doesn't move drastically," said the trader, but adding that the metal tends to track platinum.
Settlements (includes open-outcry and electronic trading):
London PM Gold Fix: $881.25 versus $866.50 on Wednesday
Spot gold at 1:50 p.m. ET: $879.95, up $14.95 from previous day; Range: $862.40-$888
June gold (GCM08) $880, up $13.50; Range $862.30-$888.50
July silver (SIN08) $16.685, up 7.2 cents; Range $16.555-$17.04
July platinum (PLN08) $2,076.90, up $37.80; Range $2,001.10-$2,093
June palladium (PAM08) $440.60, up $2.90; Range $431.15-$443
-By Allen Sykora, Dow Jones Newswires
(END) Dow Jones Newswires
May 15, 2008 14:44 ET (18:44 GMT)
Copyright 2008 Dow Jones & Company, Inc. |
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