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Gold Follows Crude's Lead

An ECB rate cuts also helps boost the metals complex, but bearish sentiment abounds.

Updated from 12:08 p.m. EDT

Gold took its lead from bouncing oil prices Thursday as commodity speculators bid up the price of energy after OPEC announced a production cut.

The news of reduced energy supplies sent the spot price of crude up 53 cents to $59.94 a barrel on the New York Mercantile Exchange, and bullion followed suit with contracts for December delivery closing up $8.80 at $575.50 an ounce, also on the Nymex.

"Oil currently dominates the commodity complex, and the metals seem to be moving in concert," says Matt Turner, a commodity analyst at specialty consulting firm Virtual Metals in London. "We are seeing a new type of investor in these markets that invests in the sector as a whole, rather than in individual commodities."

He notes that because energy makes up such a large portion of commodity indices, changes in prices in those markets have a disproportionate impact across the sector.

Longer term, news that the European Central Bank will likely keep its short-term interest rates relatively high will likely keep downward pressure on the dollar.

The ECB increased its key short-term interest rates a quarter-point to 3.25% Thursday, and its president, Jean-Claude Trichet, warned about the dangers of a robust European economy stoking wage-led inflation. Trichet did nothing to dispel investor expectations of a further 25-basis-point rate increase in December.

The announcement seems to have been largely anticipated by the market, and the dollar was mixed against the major currencies; the euro was recently trading at $1.2692, down from Wednesday's $1.2713. The greenback was weaker against the yen, buying 117.62 yen vs. 117.88 yen previously.

Elsewhere in the bullion market, Barclays Capital is accusing the Bank of France of selling 100 tons of its gold holdings in addition to the roughly 393 tons already reported by the ECB Wednesday, according to a report by London's

Telegraph

. The sales were allegedly made via the futures market to disguise the effect, the story says.

On the technical-analysis side, signals continue to leave traders feeling cautious about whether the bounce in prices might convert into a sustained rally.

"The gold price is still under its 200-day

moving average, which is a bearish indicator," says Mike Sander, an analyst at Mission Viejo, Calif-based futures broker Altavest.

Among the miners,

Freeport McMoRan Copper & Gold

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was gaining 4%, while the Amex gold Miners Index was rallying 2.2%. Shares of the bullion exchange-traded funds,

streetTracks Gold Shares

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and

iShares Comex Gold Trust

(IAU) - Get iShares Gold Trust Report

, were rising about 0.75 percent by mid afternoon.

Things were bright in the silver patch also, with Comex contracts for December delivery of the white metal jumping 27.5 cents to close at $11.07 an ounce in morning action. The silver ETF,

iShares Silver Trust

(SLV) - Get iShares Silver Trust Report

was following suit, up 2% recently.

Also benefiting from the rally were silver producers

Pan American Silver

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,

Hecla Mining

(HL) - Get Hecla Mining Company Report

and

Coeur d'Alene Mines

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, up 4%, 1.2% and 3.2%, respectively.

In base metals, Comex copper contracts were up also, with December-dated futures lifting 9.45 cents to close at $3.30 a pound. The rally helped buoy shares of miners

Phelps Dodge

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, up 4.7%, and

Southern Copper

(PCU)

, ahead by 3.4%.