Daily Gold Update

Source: Reuters

New York— Gold futures reached a 17-year high at the close on Wednesday, bolstered by investment buying and strong bullion demand, as uncertainty about the U.S. economy and currencies helped extend the metal's recent rally.

December delivery gold on the New York Mercantile Exchange's COMEX division rose $2.60 to end at $472.60 an ounce — the highest close for a benchmark futures contract since January 1988. The session range ran from $467.40 and $473.60.

After a choppy morning session, prices sprinted up to within sight of Tuesday's contract high of $474.90 an ounce, as another wave of speculative buying overpowered the trader profit-taking seen over the last day or so.

"It's looking good. We've closed above a 17-year high which is a significant level," said Graham Leighton, director of precious and base metals at Societe Generale in New York.

"Gold is moving independently of the dollar, which is exceedingly positive, signifying that gold is moving of its own accord rather than as a slave to the dollar," he added.

But the market appeared more cautious now with technical resistance viewed at about the psychological $475 area.

George Nickas, vice president of sales at FC Stone, said a recent surge in COMEX open interest could be viewed as technically bearish, as an increasing amount of outstanding positions could spark selling that might drag prices down as much as $10-$20.

COMEX gold open interest rose 4,224 contracts to 363,315 lots on Tuesday. The record high for COMEX gold open interest is 370,786 contracts, reached on Nov. 22, 2004, an exchange spokeswoman said.

Dealers eyed Hurricane Rita as well, which strengthened into a Category 4 storm, for any possible effect on oil production in the Gulf of Mexico. The potential for damage fanned fears that oil prices could spike even higher.

Three weeks after Katrina smashed into the oil-rich Gulf, Rita headed across the Gulf on a course that could take it to Galveston, Texas.

Fundamentally in gold, strong bullion demand, particularly from India, lower global mine production of late and fewer sales from central bank reserves were supportive to prices.

Greg Weldon, publisher of the Metal Monitor report, said gold and precious metals were now generating the "greatest" momentum surge of any sector.

He said the "bull phase" was being defined by bullion's appreciation against the dollar, even as the greenback rises against other currencies, and by gold mining shares outperforming both bullion and U.S. equities overall.

In what initially was seen as bearish for gold late Tuesday, the Federal Open Market Committee raised interest rates for the 11th consecutive time, lifting the fed funds rate by a quarter percentage point to 3.75 percent.

The Fed said Hurricane Katrina will provide only a temporary setback to the broad economy, and it signaled more rate hikes probably are ahead.

Meanwhile, the second year of a five-year pact to limit gold sales by European central banks starts on Tuesday.

Barclays Capital said in a report that an important issue over the next couple of weeks is whether demand will be strong enough to absorb new sales.

Spot gold last fetched $469.90/470.60, above Tuesday's New York close at $465.90/6.60. The afternoon fix in London on Wednesday was at $469.10.

Bullion hit a more-than 17-year high Tuesday at $470.70.

COMEX December silver finished up 4.0 cents at $7.415 an ounce, trading from $7.32-7.45, and holding below Monday's three-month high of $7.50. Spot silver traded to $7.35/38 vs. $7.31/34 late on Tuesday. The fix reached $7.2850.

Across the floor at NYMEX, October platinum rose $2.50 to $936.30 an ounce. The market hit an eight-month high earlier this week near $939. Spot last traded at $927/931.

December palladium rose 60 cents to $203.15. Futures on Tuesday spurted to a near-six-month high at $208.90. Spot palladium last touched $195/198.