Daily Gold Update

Source: Marketwatch

New York— Gold futures climbed to a five-week high Tuesday, as renewed trade tensions between the U.S. and China and a slide in the U.S. dollar boosted demand for the precious metal.

Gold for June delivery settled up $4.60, or 0.7%, at $681.50 an ounce on the New York Mercantile Exchange. It reached a high of $686.80 in intraday trading, the highest price seen for that contract since Feb. 28.

"The U.S. currency took another hit this morning after overnight data showed a widening (actually a doubling) Chinese trade surplus," said Jon Nadler, analyst at Kitco Bullion Dealers.

"Bullion was also bolstered by rising crude oil prices which showed strength after several sessions of significant weakness."

China's trade surplus widened to $46.4 billion from $23.3 billion. U.S. trade officials on Monday filed two cases against China before the World Trade Organization, charging that Beijing has failed to crack down on copyright violations on a wide range of products and maintaining barriers to trade in books, music, videos and movies.

"Many are expecting the dollar to come under some significant pressure in the near term with new rhetoric out of the U.S. government yesterday about another set of piracy and trade issues with China," said Neal Ryan, director of economic research at Blanchard.

"Again, this is a slippery slope and should the US ramp up the trade sanctions and protectionist trade policies, China will hit back," he said. "[Since China is] one of the largest holders of our treasuries and dollar denominated assets, it doesn't take long to figure out how they could hurt the U.S. economy the most."

China on Tuesday expressed "great regret and strong dissatisfaction" at the decision. "The decision runs contrary to the consensus between the leaders of the two nations about strengthening bilateral economic and trade ties and properly solving trade disputes," said Wang Xinpei, a spokesman for China's Ministry of Commerce, in a news release.

The dollar fell across the board Tuesday, hitting a two-year low vs. the euro.

The dollar "enters a new selling wave" as the U.S. trade action "is fuelling speculation of retaliatory acts from Beijing , which has already reported it will not attend this week's [Group of Seven] meeting in Washington, D.C.," said Ashraf Laidi, chief foreign-exchange analyst at CMC Markets in New York.

James Moore, metals analyst at TheBullionDesk.com, said: "Gold again looks well-placed to continue higher both short and long-term with negative dollar sentiment likely to be the main catalyst in the coming sessions."

"Oil prices seem to have found some stability and may look to add additional momentum as we head towards peak summer demand period," Moore said. "Resistance in gold is now pegged at $684/89, but having spent some time consolidating the metal may now look to challenge $700."

Crude-oil futures rallied Tuesday, recovering from prior-session losses, as demand for energy is expected to remain strong through the summer season.

Crude oil for May delivery rose 48 cents to $62.00 a barrel on the New York Mercantile Exchange. On Monday, the contract closed down $2.77, or 4.3%, at $61.51 a barrel. See Futures Movers.

"The gold market is being driven by investment demand, which saw another 6.15 tons of gold bought in the last two days," said Julian Phillips, an analyst at GoldForecaster.com. "Add to this the start up of more Indian gold exchange-traded funds and now an announcement of one to come in Japan."

"All these represent long-term buyers of gold, but they have set a pattern of being particularly vigorous buyers when the gold price rises," Phillips said.

"Global uncertainty as represented by the dollar, oil, China, political pressures, acts as a tide encouraging investment into gold, as an underlying driving force," he said.

Other metals prices also gained. May silver settled up 12.0 cents at $13.930 an ounce on NYMEX.

"Silver is looking set for further gains short-term as the improved sentiment in gold and the phenomenal movements in the base metals seem set to draw further interest from investors and speculators," Moore said.

July platinum settled up $9.30 at $1,273.60 an ounce on NYMEX, while June palladium closed up $5.45 at $363.45 an ounce.

"Platinum was in part aided this morning by a UBS AG report which raised its forecasts for platinum because of demand from automakers that use the metal in car parts to reduce harmful emissions," Nadler said. The forecast price for platinum in 2008 was increased 9% to $1,200 an ounce.

"I think the continuing tide of rising awareness and need to do something about global warming is playing right into platinum's hand (and palladium now at a 10 month high plus rhodium plus uranium) and could continue for some time, regardless of possible corrections in gold," Nadler said.

China's copper imports rise sharply

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