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Jewelry Demand Drives Gold

Overcoming dollar strength, the yellow metal is also aided by oil's rally.

Updated from 11:09 a.m. EDT

Renewed jewelry demand out of Asia and a rally in crude futures spurred gold prices higher Friday.

"Imports into India have popped up over the past three to four weeks," says Jessica Cross, CEO of Virtual Metals, a London-based specialty consulting firm. "And now it's working its way through the system."

Cross also classifies the jump as part of a rebound that is correcting the recent slide which overshot on the downside. Spot bullion prices fell from over $650 an ounce on Aug. 10 to under $570 late last week.

Contracts for December delivery of gold closed up $12.40 at $592.70 an ounce on the Comex division of the New York Mercantile Exchange. Gold was trading higher in tandem with crude, which was up sharply on

news of production cuts in Norway.

Shares of the exchange-traded funds that hold the metal were climbing also;

iShares Comex Gold Trust

(IAU) - Get iShares Gold Trust Report

and

streetTracks Gold Shares

(GLD) - Get SPDR Gold Trust Report

were jumping 1.8%.

Other observers note the choppy conditions in the bullion market of late.

"This is a market that is now bigger than its dealers," says Paul Tustain, CEO of

BullionVault.com

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a retail-focused Web site based in the U.K. "On days when you get serious investor interest in gold, the existing firms can't deal with the volume, and that causes volatility."

Gold's Friday rally may have been capped by a modestly stronger U.S. dollar, which was gaining on the back of favorable economic data. The Commerce Department reported declines in retail sales for September of 0.4%, compared with an expected increase of 0.2%. But when the falling cost of gasoline was factored out, sales actually grew 0.6%.

"That is a very strong showing and bodes well for the holiday season," notes Peter Morici, professor of business at the University of Maryland's Smith school of business. "Fourth-quarter GDP growth promises to be stronger, and rising profits should sustain the stock market rally."

Currency investors took the news warmly, and the dollar moved higher, buying 119.685 yen vs. 119.4 yen Thursday. It was also gaining against the euro, which was recently trading at $1.2515 compared with $1.2554 previously.

Meanwhile, other economic news shows evidence of a coming slowdown. The Weekly Leading Index fell 1% for the week ending Oct. 6, marking the 11th straight decline, according to the Economic Cycle Research Institute, which publishes the indicator. The previous period showed a 0.6% decline.

Among the miners, RBC Capital Markets cut its price target on

Meridian Gold

(MDG)

to $28 from $34 a share and reiterated its underperform rating.

Also in the gold patch, shares of

Kinross Gold

(KGC) - Get Kinross Gold Corporation Report

were going gangbusters, up 6.3% and leading the wider sector higher. The Amex Gold Bugs Index was moving up 2.6% in recent trading.

In ferrous metals, CIBC World Markets initiated coverage on

Novamerican Steel

(TONS)

with a sector-perform rating and a price target of $39 a share.

Strong demand and low inventory levels in China are keeping steel prices firm, according to a report by Shanghai-based Growell Research & Consulting. The past week has seen increases of up to 3% for flat products, while round items remained stable.

In non-ferrous metals, Comex December copper contracts closed up 2.7 cents at $3.4135 a pound.