Speculation Perks Up Gold

Updated from 2:21 p.m. EST

Gold moved marginally higher Friday as speculators continued to increase their futures holdings.

Contracts for April delivery added $3.70 to close at $686.70 an ounce on the Comex division of the New York Mercantile Exchange. The DB PowerShares Gold(DGL Quote - Cramer on DGL - Stock Picks) exchange-traded fund, which tracks futures prices, was also ahead, gaining 0.9%.

The bullion ETFs, streetTracks Gold Shares (GLD Quote - Cramer on GLD - Stock Picks) and iShares Comex Gold Trust (IAU Quote - Cramer on IAU - Stock Picks), rallied too, rising about 0.8%.

"The story at the moment is one where speculators are buying gold futures and driving prices higher," says John Reade, a gold market strategist at UBS in London. "I categorize these as momentum players," noting the absence of buying by jewelry fabricators and private investors over the past few weeks.

The lack of broad market participation, together with the relatively speedy runup in prices, is leading Reade to urge caution, despite a generally bullish outlook.

"It's come up bit too fast," he says. Spot prices have risen from around $608 in early January, or roughly 13% in seven weeks. A mere 6% rally would push gold past its multidecade high of about $725 reached last May.

Also likely helping gold was a slightly softer greenback. One dollar was recently buying 121.05 yen, down from 121.58 late previously. One euro was buying $1.3165 up from $1.3124 previously. The value of gold and the U.S. currency tend to move inversely.

Elsewhere in gold, it seems that hedging activity by gold miners was on the wane in the fourth quarter of 2006, according to a new report from the London-based specialty consulting firm Virtual Metals.

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