Daily Gold Update

Source: Reuters

New York— U.S. gold futures settled higher and above a fresh three-month low on Tuesday amid heavy volume dominated by contract rollover, while silver prices extended gains a day before a key yearly report.

Trading sources said players may be squaring positions before Silver Institute's World Silver Survey 2005 comes out Wednesday morning, although dealings mostly seemed to be technically based.

"Silver looks better than gold. It is still in its up-trend from a couple years ago," said James Turk, founder of online gold trader GoldMoney.com, in a telephone interview.

"It has found pretty strong support here just under $7.00 (per ounce) and if we can get it back above $7.20, I think the odds increase dramatically that the bottom's in place."

July delivery silver futures on the New York Mercantile Exchange's COMEX division was up 3.3 cents at $7.003 an ounce, after zigzagging between $6.96 and $7.115.

"With the forward months tight and rumors of a silver ETF (exchange-traded fund), people feel like this could go higher," said a New York trader at a metals desk.

Rumors have swirled recently of silver being stockpiled ahead of possible U.S. regulatory approval for a silver-backed security. But sources familiar with similar U.S. ETFs projects have said plans were still stuck on the drawing board.

Spot silver last fetched $6.96/6.99 an ounce, versus $6.94/96 late Monday. Tuesday's fix in London was at $7.0075.

Brokers put resistance in the gray metal at $7.245 and $7.40, with support sighted down at $6.90 and $6.81.

Gold, meanwhile, continued to mirror moves in the euro/dollar, with which it has a strong correlation.

COMEX June climbed 80 cents to end at $417.70 an ounce, after trading from $416.20 — its lowest mark since early February — to a session high at $419.40.

Estimated final volume was gigantic at 135,000 contracts, against Monday's official count of 55,280 lots.

Contract rollover from June gold into August futures before first notice day for delivery next Tuesday dominated dealings.

"I think we're at a low point here and the metals are ready to rally," said Turk. "It's that the physical demand for actual metal at these levels is just so high."

Spot gold fetched $417.40/8.10 an ounce, above Friday's New York close at $417.00/7.50. The afternoon fix in London was at $418.30.

Analysts believe support is strong in gold at $414-410.

Goldman Sachs economists said in a weekly commodities report that the dollar should weaken to $1.35 against the euro over the next three months to correct imbalances in the United States and globally.

"This view suggests that the fall in gold prices is likely temporary," Goldman said.

After gold closed, minutes from the May 3 U.S. Federal Reserve showed policy-makers noted a discernible upcreep in inflation measures recently, which made them conclude risks from accelerating prices were on the rise.

The euro last was flat against the dollar at around $1.2583, holding above a seven-month low. A strong U.S. currency dents demand for dollar-denominated bullion by making it costlier for investors using foreign currencies.

On the economic calendar are U.S. durable goods orders on Wednesday, first-quarter gross domestic product on Thursday and consumer sentiment and the Fed's preferred inflation gauge, the PCE index, on Friday.

In NYMEX metals, July platinum rose $3.00 to $869.80 an ounce. Spot platinum was stable at $865/869.

June palladium shed 35 cents to $188.40 an ounce. Spot was at $185/188.