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Another Advance for Gold

Simon Constable

Gold edged higher again Friday, as traders prepared for an extra-long weekend to close out this year and ring in 2007.

Prices for February-dated bullion contracts added $1.10 to close at $638 an ounce on the Comex division of the New York Mercantile Exchange. The exchange-traded funds that hold the metal were up also.

The iShares Comex Gold Trust(IAU Quote) was ahead by 0.2%, and the streetTRACKS Gold Shares(GLD Quote) was rising by around 0.3%.

Choppy trading marked the last, and shortened, session of 2006 -- a year that saw spot prices jump more than $100 from about $520 in January. Comex floor trading will commence next on Wednesday, as the pit will be closed Tuesday to honor former President Gerald Ford who died this week.

Bullion, which tends to move down in price on dollar strength, received little direction from a mixed greenback. The U.S. currency was gaining on the yen, with one dollar buying 119.1 yen, up from 118.91 yen late Thursday. The euro was moving up vs. the dollar to $1.3192 from $1.3146 a day earlier.

Although the dollar has lost considerable ground against the euro over the past few weeks, mounting evidence points to a more robust U.S. economy next year, a possible positive for the greenback.

"It's quite clear to us that recession is no longer a serious concern," says Lakshman Achuthan, managing director at the Economic Cycle Research Institute in Manhattan. "This is consistent with no rate cut," by the Federal Reserve.

He points to ECRI's Weekly Leading Index, which logged a gain of 3.8% for the period ended Dec. 22, up from a rise of 3.4% the prior week. The figure marks the eighth consecutive increase in the indicator.

Achuthan says one possible scenario for next year is that the U.S. economy surprises on the upside and Europe on the downside. Such an occurrence may play in favor of the dollar, a result that could make the going tough for gold.

Turning to the technical analysis aspects, one chart watcher sees a continued upward trend for gold going forward.

"I think we'll see a test of the $650-to-$657-an-ounce level," says Larry Levin, president of Chicago-based SecretsOfTraders.com. He spies channel support at around $615 and resistance in the range of $640 to $643.

Turning to the base metals, Comex March copper contracts lost 2.4 cents to close at $2.871 a pound.

Shares of copper producer Phelps Dodge(PD Quote) followed the metal lower, off 0.2% recently.