Source:Marketwatch
San Francisco— Gold futures rallied to a two-month high Thursday as energy prices firmed and concerns over the economy and expectations for a weaker U.S. dollar helped the precious metal break a three-session losing streak.
"The political punditry is all but over — the Democrats are now firmly in control and the first indication of a fresh course in the making is seen in Rumsfeld's lightning-quick departure," said Jon Nadler, analyst at bullion dealers Kitco.com.
At the same time, there's "concern that change in house of Congress might spur some inflationary policies, but that remains to be seen," said Phil Flynn, a senior analyst at Alaron trading. "Some policies of the Democrats may be dollar negative, and bullish for the precious metal."
Gold for December delivery closed up $18.50 at $636.80 an ounce on the New York Mercantile Exchange after peaking at $637 to mark its highest closing and intraday levels since early September. The contract closed over $9 lower Wednesday as traders reacted to the Democratic Party sweep of Congress by consolidating recent gains. Prices tallied a loss of $10.90 over the past three days.
December silver closed at a two-month high of $13.05 an ounce, up 50 cents, or 4%, for the session.
U.S. voters wanted a resolution of Iraq, "but what they got is a new Speaker of the House," said Ned Schmidt, editor of the Value View Gold Report. "Apparently, the gold market now realizes the potential damage to the U.S. of the new Congress."
"Gold and silver are the only insurance policies available against the threat of the new Congress," he said.
There was further support for gold Thursday in comments from Peoples Bank of China Governor Zhou Xiaochuan who said at a Frankfurt conference that China has very clear plans to diversify its currency reserves, which now stand at more than $1 trillion. A wide range of instruments are under consideration, including gold and oil.
"The news is bullish for gold, but not really new," said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co, who pointed out that central banks worldwide have been diversifying reserves since 2001.
Julian Phillips, an analyst at GoldForecaster.com, said funds are dominating the trend in the very short term, "but longer term, the fundamentals dominate the trend, which is up," he said.
Eyeing oil, dollar moves>/b>
Oil rose in a continued response to supply data that showed a smaller-than-expected rise in crude inventories in the latest week and a fifth week of declines in distillate supplies.
There was also speculation that the Democratic victory may lead to an earlier U.S. exit from Iraq than had been planned — a move that may intensify violence in the country, spark a civil war and disrupt oil production.
Overall, it "seems like there's a movement back to the hard commodities," Flynn said, and it "looks like commodity funds are coming back in."
Meanwhile, the dollar gave back most of its early gains against the yen and extended losses vs. the euro as traders reacted to China's reserve diversification plans. Earlier, the greenback found some support when the Commerce Department said the U.S. trade deficit narrowed by 6.8% in September to $64.3 billion. Economists had expected a deficit of $66.3 billion. The U.S. trade deficit with China widened to a record $23.0 billion.
Separately, the Labor Department said prices of imported goods dropped 2% in October. Economists had expected prices to drop 1%.
Against this backdrop, January platinum rose $33.70 to end at $1,201 an ounce and December palladium closed up $10.50 at $338.90 an ounce. December copper added 6.45 cents to finish the day at $3.309 a pound.
On the supply side, gold inventories were down 64 troy ounces at 7.53 million troy ounces as of late Wednesday, according to Nymex data. Silver supplies rose by 570,336 troy ounces to 107.4 million and copper supplies rose by 159 short tons to 25,664 short tons.
Metals shares headed higher, following strength in metals prices after closing lower in the previous session.
Tracking the sector as a whole, the Philadelphia Gold and Silver Index was at 142.26, up 4.3%, and the CBOE Gold Index rose by 4.9% to trade at 149.60. The Amex Gold Bugs Index added 3.9% to stand at 340.12.
The DJ Wilshire Nonferrous Metals Index rose by 2.4% to 5,223.61. The DJ Wilshire Industrial Metals Index traded at 3,100.27, up 2.2%, and the DJ Wilshire General Mining Index rose 2.8% to 1,372.96.
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