Gold Breaks Above $600

Investment demand helps the metal climb above a key psychological resistance.
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Gold successfully pierced the psychologically vital $600 level Wednesday, spurred on by renewed investment demand.

Although the session's first attempt to break through stubborn resistance quickly petered out, a later effort triumphed with gold closing above $600.

Contracts for December delivery of bullion closed up $6.20 at $603.30 an ounce on the Comex division of the New York Mercantile Exchange. Bullion was also showing good gains in aftermarket trading, up a further $4.20.

"I think what you've seen is investors returning to the gold market on the long side," says Jeff Christian, managing director of New York-based CPM Group, a specialty consulting firm. "They had liquidated a third of their position over the first three weeks of September."

He also notes a certain amount of buying activity by short-sellers wanting to cover their October-dated positions, which come due this week.

A mixed dollar failed to provide traders with direction, but unlike Tuesday, it didn't seem to hamper the rally. The dollar was rising against the yen, recently buying 117.555 yen compared with 117.15 yen late Wednesday. It was losing vs. the euro, which was trading at $1.2704 compared to $1.269 previously. The price of bullion tends to move inversely with changes in the dollar.

Some technical analysts are looking to recent history for guidance on where the price might move next.

"Everybody was bullish on gold in May and June," at about the same time that the price started to moderate, says John Bollinger, head of Bollinger Capital and inventor of Bollinger Bands, a technical-analysis tool. "Under those circumstances, markets have difficulty in rallying because there simply isn't new money

on the sidelines ready to jump into the market."

Bollinger says similar bullish sentiment is now pervasive. He'd want to see a sustained breakout of gold and the gold stocks, as well as the other precious metals, such as platinum and silver, before he'd be prepared to revise his neutral view. He adds that negative sentiment might turn him bullish.

Elsewhere, other institutional factors are affecting trade.

Thin trading levels and quarter-end portfolio rebalancing may be affecting the trade across the metals complex, says Alex Heath, an analyst with RBC Capital Markets in London. On the bullish side, there is some interest from jewelry makers, he notes.

Among the miners,

Newmont Mining

(NEM) - Get Report

announced that its gold sales will dip to between 5.2 million and 5.6 million ounces in 2007, down from a forecasted 5.6 million to 5.8 million in 2006. The company cites the expropriation of its 50% stake in the Zarafshan-Newmont joint venture in Uzbekistan.

Traders weren't impressed and the stock was marked down sharply, off 3.1% recently.

The

Market Vectors Gold Miner

(GDX) - Get Report

exchange-traded fund was edging up 1.2% lately, while the bullion ETFs, the

iShares Comex Gold Trust

(IAU) - Get Report

and

streetTRACKS Gold Shares

(GLD) - Get Report

, were each 1.6% higher recently.

At the retail level there are signs that demand is emerging after a slow summer. Sales of the 22 karat (91.7% pure) American Eagle gold bullion coins total 9,500 ounces so far in September, according to the latest data from the U.S. Mint. That compares with 4,000 and 2,000 ounces in each of August and July, but still significantly down from 38,000 for the whole of September 2005.

The Mint also says it sold 33,500 of its 24 karat (99.99% pure) one ounce Buffalo coins during September so far. That's up from 22,000 in August, but down from 117,500 in July. The Mint started selling the new coin in June, so the first few months will likely be viewed as sating pent up demand as well as inventory building by dealers.

In base metals, copper was rallying modestly, in line with the precious metals. Comex December contacts closed up 2.1 cents at $3.487 a pound.

Among the miners, Canadian zinc producer

Teck Cominco

(TCK)

announced it received a strike notice from the United Steel Workers union Tuesday at its Highland Valley Copper facility and could see a walkout starting Oct. 1. Separately, the company slashed its third-quarter zinc sales forecast to 125,000 tons from the previously announced estimate of 175,000 tons.

Elsewhere, diversified miner

Rio Tinto

(RTP) - Get Report

was surging 3.3%, and

BHP

(BHP) - Get Report

was up 2.7%.