Daily Gold Update

Source: Marketwatch

San Francisco— Gold futures started to show signs of new life Monday afternoon, straddling the line between positive and negative territory but trading above a more than six-week high after suffering from a nearly 7% drop in prices over the last four sessions.

Another sell-off in global markets and a rally in the Japanese yen has prompted investors to seek liquidity by eliminating commodity positions, including gold — taking prices for the precious metal Monday to their lowest level since mid-January.

But "this sell-off in gold and silver was not only overdone, it got totally out of hand," said Peter Spina, chief investment strategist at GoldSeek.com.

"Clear-thinking investors are now realizing the opportunity that confronts them, especially with the mining equities which were pummeled over the past sessions," he said in e-mailed comments.

"Fear has entered back into the marketplace and this will not only benefit gold going forward," he said. "It is likely to help send it to prior record highs."

Gold for April delivery was last down $1.60 at $642.50 an ounce on the New York Mercantile Exchange. Prices touched $635.20 earlier, their lowest intraday level since Jan. 19, but they've also climbed as high as $645.30 during the session.

The contract had lost $45.70, or 6.6%, over the past four sessions.

U.S. stocks saw another tumultuous session on Monday, as the yen rallied against major currencies, while stocks across Asia ended sharply lower, with indexes in Japan, Malaysia, Hong Kong, and Singapore retreating more than 3%.

"Gold traders see the stock market recovery off the days lows and are growing more bullish that a financial meltdown is not in the works," said John Person, president of NationalFutures.com.

"If this stock market continued lower, then I would have expected gold to fall as well — mainly because hedge funds and others who are cashed strapped would be liquidating holdings to meet potential margin calls [and] one holding might have included gold," he said in e-mailed comments.

"But this has not happened today and as a result we are seeing gold rally sharply off the lows," he said.

"For some who believe the global economy is still vibrant, buying gold is a bargain near the $640 level," said Person, pointing out that gold prices were at $690 just a few days ago. "It certainly presents a lower risk to buy today than it did last Friday."

U.S. stocks attempted to rebound late Monday morning, bouncing off into positive territory after earlier stumbling on news of a weakening in the service sector of the economy, fresh jitters from global markets overnight, and concerns in the distressed subprime mortgage market.

Given the declines in Asian stock markets, particularly Japan, "further warning flags were put up as to the potential global impact of the unwinding of the gargantuan positions in almost all assets that had been built on essentially free yen borrowings," said Jon Nadler, an analyst at Kitco Bullion Dealers, in an e-mailed note to clients.

"Many traders were attributing the fall in gold last week to the yen carry-trade debacle," said Person. But "I do not see that as having a major impact on gold.

"The real story was that traders were afraid [that] if the global economies were headed for a recession …. then gold would lose its luster as an investment hedge against inflationary pressures," said Person.

So contrary to the expectations of some market observers who believe that gold absolutely must rise during periods of duress, gold has been under pressure, Dennis Gartman, publisher of the Gartman Letter said in an e-mailed note.

"Gold remains a source of liquidity that can be tapped when it must be tapped," Gartman said.

On Friday, gold futures lost $21 to close at $644.10 an ounce — down more than 6% for the week. Prices have been falling from last Monday's $689.80 level in the wake of Tuesday's global sell-off in stocks, which triggered volatility across financial markets.

"Conditions are set to remain volatile in the week ahead with traders likely to be sensitive to further selling pressure, particularly now that energy prices are starting to be dragged lower," said James Moore, an analyst at TheBullionDesk.com.

Gold should encourage buying interest from physical players as well as longer-term investors, but given the current mood in the market, the precious metal might dip further in the near term before it finds a base, Moore said in an e-mailed research note.

It's not just gold that suffers

Other metals price also posted losses, with April platinum leading the pack, last down 3%, or $36.80, at $1,175 an ounce after a one-month low of $1,165.

May silver tapped $12.50 an ounce to trade near a two-month low, and was last down 17 cents at $12.79 an ounce.

June palladium slipped $5.10 to trade at $345.50 an ounce and May copper was last down 2.65 cen