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Momentum Traders Bid Up Gold

Simon Constable

Gold prices moved up again Thursday as nervous traders tentatively dipped back into the market.

April-dated bullion contracts tacked on $2.60 to end the session at $655.50 an ounce on the Comex division of the New York Mercantile Exchange.

The bullion exchange-traded funds streetTracks Gold Shares(GLD) and iShares Comex Gold Trust (IAU) were each up by about 0.2%.

Traders are playing the momentum and are looking for intraday opportunities rather than making moves to boost longer-term precious metals holdings, says Jon Nadler, an analyst at Montreal Bullion dealer Kitco.

Spot prices dropped to around $635 on Monday following a failed attempt to breach resistance at the $690 level last week. The dip was sparked by a selloff in China's stock markets last week, which sent speculators fleeing to cash while they dumped assets across the board. Since the start of this week, gold prices have recovered some of those losses.

Whether a gold bull trend resumes in earnest remains to be seen, but that a level of skepticism remains is almost certain.

"I don't think there is a perception that everything has reversed," says Nadler, who adds that at a minimum, resistance at $675 will need piercing convincingly to tempt longer-term buyers back.

On the economics front, the Labor Department reported modestly better-than-expected data on new claims for unemployment insurance. But despite the relatively benign figures, the trend is still moving higher compared with where claims were a few weeks ago.

Data on the economy are important to gold because they have an effect on interest rates and the U.S. dollar, in turn influencing the direction of the metal. Fed funds futures are now pricing in a 100% chance of two drops in rates by the Federal Reserve by year end, and a small possibility of a third, says Randy Diamond, an analyst at Miller Tabak in New York.

The potential for decreases in the cost of borrowing auger for a softer greenback in the months to come, and further support for a higher gold price. The value of gold tends to rise in dollar terms as the price of the dollar falls.

Still, the U.S. currency was rallying for the session, with one dollar was recently buying 117.09 yen, up from 116 yen late Wednesday. The euro was worth $1.313, down from $1.318 previously.

Turning to the miners, shares of Golden Star Resources(GSS) added 0.8%, while Freeport-McMoRan Copper & Gold(FCX) rose 2.6%.

As for base metals, copper contracts closed 5 cents higher at $2.83 a pound following strength in Shanghai.

"[Prices for base metals] are set to head higher and may even get quite aggressive as some large shorts are still thought to be in the market, especially in copper," writes William Adams, an analyst at BaseMetals.com in London. Inventory restocking in China should provide a fundamental basis for rising prices also.

Shares of Southern Copper(PCU) rose 2.8%, buoyed by the higher prices for copper.