Momentum Traders Bid Up Gold

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 Quote) added 0.8%, while Freeport-McMoRan Copper & Gold(FCX Quote) 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 Quote) rose 2.8%, buoyed by the higher prices for copper.