Updated from 12:05 p.m. EDT
Gold and metals reversed early losses and finished higher on Friday, overcoming a strong dollar and concerns about economic growth ahead of the
rate-setting meeting next week.
Newfound optimism on Wall Street, rising crude oil prices and a bullish broker note on copper all helped metals erase their morning negative bias.
Gold for August delivery rose $2.60, or 0.4%, to close at $588 an ounce.
Among other metals, silver for July delivery gained 0.1 cents, or 0.7%, to $10.28 an ounce and copper rose 10.25 cents, or 3.4%, to $3.15 a pound.
Copper perked up after UBS lifted its 2006 price forecast for the metal to $2.80 a pound from $2.65 previously. It also upgraded
( PD) to buy from neutral and raised its price target on the stock to $110 from $100. Phelps Dodge was recently up 4% to $83.71.
Among other copper producers,
was recently up 2.8% and Southern Copper
( PCU) was up 3.5%.
Gold, which acts as a hedge against inflation, also received a lift as crude oil advanced amid expectations of strong gasoline demand ahead of the U.S. summer-driving season. Crude oil was recently up 21 cents at $71.05.
Metals managed to overcome morning weakness and recent interest-rate jitters, as stocks on Wall Street tentatively turned positive midday.
Many observers say the severe corrections experienced by metals and commodities over the past month reflect concerns that rising interest rates the world over will curb growth and subdue inflation, which include surging commodities prices.
In the U.S., the Fed is no longer expected to pause its two-year-long campaign to hike rates at the end of June. Meanwhile, the U.S. economy is already expected to decelerate and many worry that the Fed might overshoot, slowing U.S. -- and global -- growth too much.
With the Fed now expected to deliver another quarter-point hike at the end of a two-day meeting next Thursday, "metals continue to be confused about the direction of the economy and are certainly still somewhat limited by 'fear of the Fed'," writes Nell Sloane, metals analyst with NSFutures.com.
On Friday, news that U.S. orders for durable goods were weaker than expected in May did little to change expectations that the Fed will hike rates next week, and possibly again in August.
Orders for big-ticket items dropped 0.3% last month, while Wall Street economists expected orders to rise 0.4%. But excluding depressed non-defense aircraft orders, orders rose 0.7%, above the 0.6% forecast. "For now, the industrial sector is strong," writes Ian Shepherdson, chief U.S. economist with High Frequency Economics. "The risk is elsewhere."
Besides growth concerns, the economic report kept the dollar well bid and had pressured metals in early action. A stronger greenback lowers the value of dollar-denominated commodities such as gold, as it takes less of the currency to buy the same amount of gold.
The Dollar Index, which tracks the greenback against a basket of key currencies, was recently up 0.4%.
The dollar, which had been on a downtrend since late last year, started to strengthen last month as expectations that the Fed would continue to hike rates resurfaced.
The market is currently pricing in 100% odds that the Fed will hike by a 25 basis points next week, and 14% odds that it will hike by 50 basis points, according to Miller Tabak.
"While gold prices (and equity markets) may already have factored in a quarter point adjustment as a certainty, we are not so sure that things will fare equally well in the face of a larger rate increase," writes Jon Nadler, investment products analyst at bullion dealer Kitco.
"Unless shock factors (i.e. a N. Korean launch and/or missile shoot-down or an early but negative response from Iran) take the markets by surprise in coming days, gold traders will execute their pre-weekend book-squaring ritual and prepare for the 4th of July holiday right after the
Fed meeting and/or announcement on the 28th," he adds.
Ongoing nervousness over North Korea's intentions to launch a nuclear test missile has so far failed to incite safe-haven bids for gold. Instead, it has pressured the yen and helped boost the dollar.
Meanwhile, shares of metals miners also turned positive, tracking the metals reversals and rising shares on Wall Street. The Philadelphia Gold and Silver index was recently up 0.5%, the Amex Gold Bugs index was down 0.4% and the CBOE Gold index was down 0.6%.
Among the biggest gainers,
was recently up 1.5% and among the biggest decliners,
was losing 1.5%.
was recently up 1.3% after the company said it was in "advanced" talks with
, Mittal's takeover target which has so far tried to fend off the hostile bid.
"We can confirm that we are in advanced and constructive discussions with Arcelor which may or may not lead to a recommended transaction," Mittal said in a statement.
Arcelor's board will meet Sunday to consider Mittal's bid against its plans to merge with Russia's
The recently launched
Market Vectors-Gold Miners
exchange-traded fund, which tracks the performance of the Amex Gold Miners Index, was up 1.9%.
ETFs tracking the metals themselves also turned higher. The
iShares Silver Trust
was up 1%, and the
StreetTRACKS Gold Trust
was up 0.4%.