Gold Rises with Gusto

The precious metal rebounds in concert with global stocks and crude prices.
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Updated from 12:41 p.m. EDT

Gold and metals finished sharply higher on Tuesday, tracking a global rebound in stocks, emerging markets, and crude oil prices.

Gold for June delivery gained $16, or 2.43%, to $673.70. After surging to a 26-year high of $730 two weeks ago, gold had dropped nearly 13% to an intraday low of $636.80 on Monday before mounting a late-session comeback.

"We possibly saw the low on Monday," says Dennis Gartman, a gold analyst and editor of

The Gartman Letter

. "We've seen a pretty substantial decline and reached a good correction level."

Other metals rallied even more. Silver for July delivery rose 74 cents, or 5.95%, to $13.17 and copper for July delivery jumped 42 cents, or 12.25%, to $3.88 a pound.

Metals and commodities had suffered a sharp pullback in five of the past seven sessions, as concerns that rising interest rates might derail global growth rocked the world's financial markets.

But a rebound was underway on Tuesday, with most Asian and European stock exchanges posting sharp gains.

For gold and metals, signs of a recovery were already evident on Monday afternoon as the dollar weakened. A lower dollar boosts the price of dollar-denominated commodities, such as gold, as it takes less of the currency to buy the same amount of gold.

Whether or not the recovery in gold continues "really depends on whether the dollar weakens further, which I think it will," says Gartman. "If Monday's low holds for another couple of days, then we'll see buyers return

because this remains a bull market."

The dollar has been in a downward trend so far this year on expectations that the

Federal Reserve

would soon pause its campaign to raise interest rates. But it has recovered some ground recently as Fed officials hinted that rates might have to go higher after stronger-than-expected inflation reports.

After falling Monday, the dollar was recently up vs. the euro after a weakening in French business confidence. But the stronger outlook for the euro remains in place amid expectations that the European Central Bank will continue lifting eurozone rates to curb inflationary pressures, as an ECB official signaled on Monday. The greenback was weaker vs. the yen on Tuesday.

For dollar-denominated commodities, worries that central banks are raising rates to curb growth and inflation pressures are somewhat countered by weakness in the greenback.

Even the prospect of slower growth in an inflationary environment (so-called stagflation) would be positive for some metals, such as gold and silver, says Chintan Karnani, metals analyst at New Delhi, India-based Insignia Consultants.

"A global move toward stagflation due to ever-rising crude oil prices (is) all bullish news for gold and silver," Karnani wrote in his daily commentary.

Crude oil was recently up $1.84 at $71.80 a barrel. Crude returned above the key $70 level after forecasts of an active hurricane season in the U.S. revived concerns of supply disruptions, as happened after Hurricane Katrina last September.

In addition, Iran's nuclear ambitions were brought back to the market's attention. United Nations Security Council members will meet on Wednesday to discuss ways to prevent Iran from enriching uranium.

Tensions over Iran, the world's fourth-largest producer of crude oil, had led a barrel over $75 last month, also fueling gains in gold, which is viewed as a safe-haven asset.

Meanwhile, the shares of metal-mining companies were sharply higher in recent action, tracking the performance of metals. The Philadelphia Gold and Silver index was recently up 4.3%. Both the Amex Gold Bugs index and the CBOE Gold index were up 6%.

Among the biggest gainers,

Harmony Gold

(HMY) - Get Report

was up 9.8%,

Glamis Gold

(GLG) - Get Report

was up 8% and

Meridian Gold

(MDG)

was up 9.9%.

Meanwhile,

Aurizon Mines

(AZK)

was up 36% after

Northgate Minerals

(NXG)

launched an unsolicited bid to acquire the company for $388 million. Northgate was down 2.2%.