Gold Inches Ahead

Sharp weakness in the dollar fails to inspire buyers ahead of the holiday weekend.
Author:
Publish date:

Gold inched higher Wednesday, but investors seemed unwilling to commit to new positions ahead of the Thanksgiving holiday.

February-dated bullion contracts closed up 30 cents at $635.40 an ounce on the Comex division of the Nymex, while contracts for December delivery closed at $629, also up 30 cents. By the end of the session, open interest on the February contract reached 11.9 million ounces, surpassing the 11.6 million ounce total for December positions. The later-dated contract now becomes the futures market benchmark.

Prices are being largely driven by professional investors who don't seem to want to enlarge positions ahead of the holiday weekend, says Bernard Hunter, director of precious metals at bullion bank ScotiaMocatta in Toronto.

Meanwhile, retail investors are likely very cognizant that the gold market has gone "off the boil" since retreating from a multiyear high of $725.25 in mid-May, and may be unwilling to jump back in until some sizzle returns, Hunter says. In addition, buyers of the physical metal such as jewelry fabricators are staying away, he says, hoping to make purchases on future price dips.

On the economic front the Labor Department reported a jump in jobless claims to 321,000, last week vs. analysts forecasts of 310,000, and a revised figure of 309,000 for the prior week.

Also out in the morning was news from the Economic Cycle Research Institute that the Weekly Leading Index rose 1.6% last week, compare to an increase of 1.1% in the previous period. The move marks the third-straight week of gains, following a summer of more than a dozen consecutive declines. Combined with the unemployment data, the ECRI index seems to show a relatively healthy economy.

However, Tuesday's downward revisions to growth forecasts by the White House shows the economy is still slowing down and will likely continue to do so. The new projections call for growth in 2007 of 2.9%, down from 3.6% forecast in June.

"We're seeing stronger evidence that a hard landing or recession for the overall economy can be avoided," says Lakshman Achuthan, managing director at ECRI in Manhattan. "We are aware of some pronounced weakness in the industrial sector," but strong services could actually outweigh that factor.

A soft landing, if combined with low inflation, could mean that the

Federal Reserve

can take its foot off the brake pedal and reduce short-term interest rates. The anticipation of such a move could weaken the greenback and possibly propel gold prices higher. Bullion prices tend to move inversely with changes in the value of the U.S. currency, which was recently trading at 116.74 yen, down from 117.80 late Tuesday. The euro hit a five-month high Wednesday and was recently trading at $1.2983 vs. $1.2849.

Among the miners, HSBC Securities blessed

Gold Fields

(GFI) - Get Report

with an overweight rating, up from neutral, while Canaccord Adams upped its rating on

Goldcorp

(GG)

to buy from hold.

Friedman Billings Ramsey boosted its rating on

Freeport McMoRan Copper & Gold

(FCX) - Get Report

to outperform from market perform and increased its price target to $74 a share from $57. Meanwhile, Credit Suisse speculated that

BHP Billiton

(BHP) - Get Report

might be interested in acquiring Freeport McMoran, which earlier this week announced a deal to acquire

Phelps Dodge

(PD) - Get Report

.

In base metals, March-dated Comex copper contracts closed off a 1.15 cents at $3.136 a pound, with declining demand continuing to weigh down on prices.

The U.K.-based World Bureau of Metal Statistics issued a report estimating that the copper market surplus reached 228,000 tons in the first nine months of the year, more than double the 88,000-ton total for the year through August.

Elsewhere, Matrix Research bumped up its rating on

Century Aluminum

(CENX) - Get Report

to strong buy from buy, helping boost the stock, which was up 2.3% recently.