Gold Follows Oil Higher

The yellow metal is able to overcome a rising dollar, which benefited from strong retail sales data.
Author:
Publish date:

Updated from 11:36 a.m. EST

Gold edged a hair higher Wednesday even though stronger-than-expected retail sales data helped strengthen the dollar.

Contracts for February delivery of gold closed up 70 cents at $632.40 on the Comex division of the Nymex. Earlier prices had fallen to an intraday low of $627.50 an ounce before bouncing. Meanwhile, the bullion exchange-traded funds were slipping.

streetTracks Gold Shares

(GLD) - Get Report

were recently losing 0.3%, as was the

iShares Comex Gold Trust

(IAU) - Get Report

.

A key driving factor in the market was a new report from the Commerce Department that showed November retail sales grew 1%, smashing consensus forecasts of 0.2% growth. Excluding automobile figures, sales jumped 1.1% in the month. October sales numbers were revised upward to a fall of 0.1% from a 0.4% decline previously.

"This just shows you what the American consumer can do during the holiday season," says Kurt Karl, chief U.S. economist at Swiss Re in New York. "If they broke

their spending habits, it would be problem for the rest of the economy."

Karl adds that he forecasts a slowing economy in 2007 with a possible rate cut by the

Federal Reserve

toward the end of the second quarter as inflation concerns subside. Such a move, together with a strong European economy, will cause the dollar to weaken further. He sees the euro trading at $1.35 by the end of next year.

The dollar was recently buying 117.535 yen, up from 116.80 yen late Tuesday. The euro was worth $1.32, down from $1.328. Bullion prices tend to move inversely to the value of the greenback.

It was news of plunging oil inventories from the Energy Department that turned the tide for bullion. That sent oil prices modestly higher, followed by gold. Oil is seen as a key driver of inflation and gold is often purchased as a hedge against a rising price level.

Nearby contracts for light sweet crude were ahead 37 cents at $61.39 a barrel in recent trading on the Nymex.

Earlier in the session, OPEC indicated decisions on production cuts may be postponed,

Bloomberg

reported. The initial weakness in prices, which came on the back of the OPEC talk, was overcome once inventory figures were released.

The major oil producers were rising also. Shares of

Exxon Mobil

(XOM) - Get Report

were up 1.1%, while those of

BP

(BP) - Get Report

were ahead 0.2%.

Back in gold, on the technical analysis side, chart watchers say the yellow metal is in a consolidation phase.

"We need to build a base before moving higher," says Adolfo Rueda, a technical analyst at Natexis Bleichroeder in New York. "Once it's built, then you could see an attempt at $900."

In the gold patch, JPMorgan raised its rating on

Harmony Gold

(HMY) - Get Report

to overweight from neutral. The stock was recently moving up 2.1%.

RBC Capital Markets hiked its share price target on

Agnico-Eagle Mines

(AEM) - Get Report

to $53 a share from $45. The stock was recently trading at about $42 a share, down 1.1%.

In base metals, copper contracts for March delivery closed down 6.15 cents at $3.033 a pound. The U.K.-based World Bureau of Metal statistics reported an increase to surpluses of the red metal.

Shares of copper producer

Phelps Dodge

(PD) - Get Report

were losing 0.4% on the weaker metal price.