'Carry Trades' Lift Gold

"A very bullish technical picture has developed," says Peter Grandich, editor of The Grandich Letter, who notes that gold prices have withstood a stronger-than-expected greenback, as well as falling energy prices.

Crude oil prices, considered a key factor in causing inflation, have declined about 10% since the beginning of the year, while spot gold prices have remained steady. Some investors purchase gold as a hedge against a rising price level, and the robust performance of bullion, despite the likelihood of reduced inflation concerns, looks encouraging for the bulls, Grandich explains.

In the official sector, the European Central Bank announced net sales of 36 million euros of gold and receivables last week, or about 2.3 tons. The transaction reflects selling by one bank in the ECB system and purchases by another, with the latter no doubt encouraging the bulls.

In the precious metals patch, Randgold Resources(GOLD Quote) was gaining more than many, up 1.8% recently, while AngloGold Ashanti(AU Quote) was losing less than 0.1%.

Turning to base metals, benchmark copper contracts bounced 2 cents to close at $2.56 a pound on the Comex following Monday's 10-cent drop.

Elsewhere, Deutsche Securities downgraded shares of miner Southern Copper(PCU Quote) to hold from buy, but the stock still bounced, up 1% recently.

Friedman Billings Ramsey took Phelps Dodge(PD Quote) down a notch to a market perform rating from outperform. It also trimmed its stock-price target on Freeport McMoRan Copper & Gold(FCX Quote) to $69 a share from $74, but maintained an outperform rating on the shares. Phelps was up 1% recently, while Freeport was adding 2.2%.

As for ferrous metals, U.S. Steel(X Quote) reported better-than-expected fourth-quarter results after the close Monday. The news helped boost the stock, up 4.5% in afternoon action.