Gold Bugs Show Resilience

The July contract firms again and is back above $650.
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Updated from 2:22 p.m. EDT

The metals complex finished Friday's volatile session higher ahead of a three-day holiday weekend, tracking a rise in crude oil prices.

Gold for June delivery rose $2.50 to close at $651 an ounce, after hitting a low of $640.50 earlier in the day, but still fell $6.50, or 1%, from where it ended last week.

Other metals also rebounded from morning pressure. Silver for July delivery gained 13 cents to $12.73 an ounce, and the July copper contract rose 10.75 cents to $3.81 a pound. Silver and copper each recovered this week, adding 3% and 12%, respectively.

As oil prices again rose, gold, which acts as a hedge against inflation, received a lift. The front-month crude contract closed higher by 5 cents at $71.37. Oil topped $75 a barrel last month amid tension over Iran's nuclear ambitions, and the run-up also helped fuel an ascent in gold.

Both strengthened Friday after Iran's foreign minister said during a trip to Iraq that his nation, the world's fourth-largest producer of crude oil, wasn't interested in meeting with U.S. officials to discuss security matters in Iraq. He also said Iran would retaliate if the U.S. launched a military attack.

Gold has firmed during the last two days of the trading week, but metals have largely been in a two-week downturn as concerns built that global central banks are lifting interest rates to curb growth and inflation, notably from soaring commodities prices.

According to Nell Sloane, a metals analyst at NSFutures.com, the recent weakness in the sector attracted bargain hunters in Asia overnight, which "combined with the upward bias in energies for a mostly bullish condition."

Meanwhile, shares of miners were up slightly. The Philadelphia Gold and Silver index tacked on 0.3%, while both the Amex Gold Bugs index and the CBOE Gold index were up 0.5%.

Among the biggest gainers,

Glamis Gold

(GLG) - Get Report

was up 2.1%,

Coeur d'Alene

(CDE) - Get Report

was ahead by 1.1%, and

Newmont Mining

(NEM) - Get Report

added 0.4%.

Dutch steel maker

Mittal

(MT) - Get Report

was up 4.3% after Luxembourg's

Arcelor

said it reached a merger agreement with Russia's

Severstal

. Arcelor's move is an effort to thwart Mittal's hostile takeover bid.

The newly launched

Market Vectors-Gold Miners

(GDX) - Get Report

exchange-traded fund, which tracks the performance of the

Amex Gold Miners Index

, was up 0.8%.

Meanwhile, ETFs tracking the metals themselves were posting milder gains. The

iShares Silver Trust

(SLV) - Get Report

was up 0.1%, while the

StreetTRACKS Gold Trust

(GLD) - Get Report

was gaining 0.5%.

Metals prices slumped in early trading after the latest U.S. economic data sparked worries that waning consumption might hurt demand for commodities. The Commerce Department said consumer spending rose 0.6% in April, in line with expectations, while personal income gained 0.5%. However, the increase in income was matched by a 0.5% gain in consumer prices, leaving real disposable income in the red, down 0.1%.

"Basically, people are doing everything they can just to keep up with rising prices," writes Joel Naroff, president of Naroff Economic Advisors. "And the money they earn is just really not enough."

Consumer confidence, as measured by the University of Michigan index, dropped in May as gasoline prices surged. Markets hope that any fears about slowing consumption might prompt the

Federal Reserve

to take a break from its 23-month-long campaign to raise interest rates.

The odds that the Fed will hike rates another 25 basis points in June stood at 54% recently, only slightly down from Thursday, according to Miller Tabak. Since the prevailing view is for more tightening, the dollar was stronger -- a negative for gold and metals. The dollar index, which measures the greenback against a basket of key currencies, was up 0.6%.

A stronger U.S. currency hurts the price of dollar-denominated commodities, such as gold, because it takes a smaller amount to buy the same amount of gold.