Daily Gold Update

Source: Marketwatch

New York— Gold futures rallied Thursday, gaining in the face of a falling U.S. dollar, dimmed hopes of Mideast peace and a call to holy war issued by al-Qaida's deputy leader.

Gold for August delivery was last trading up $15.40 at $637.30 an ounce on the New York Mercantile Exchange.

"Perhaps the single most relevant catalyst for this morning's surge in precious metals was the paroxysm of calls to global Jihad by Al Qaeda's deputy,' said Jon Nadler, analyst at Kitco.com.

In a video broadcast on the Arabic TV station al-Jazeera, al-Qaida's second-in command called on Muslims around the world to join in a holy war against Israel, according to media reports.

Osama bin Laden's deputy, Ayman al-Zawahri, said that the al-Qaida considers "all the world as a battlefield open in front of us" and that the fighting in Lebanon and Gaza will not end with "cease-fires or agreements," the Associated Press reported.

"Thursday's declaration of global religious war by an angry al-Zawahiri comes on the heels of the failed Rome summit and amid a deepening of the Lebanese operation being staged by Israel," Nadler said.

In a separate political development, Palestinian President Mahmoud Abbas said Thursday that the release of an Israeli soldier, whose kidnapping triggered an Israeli offensive in Gaza in late June, could be "imminent," the Associated Press reported. Abbas spoke after a meeting in Rome with the Italian prime minister.

On the currency markets, dollar weakness also boosted gold. The dollar slipped to two-week lows versus the euro and yen and a seven-week low against the British pound on Thursday.

The Federal Reserve's Beige Book report which triggered a drop in the dollar Wednesday continued to resonate on the market. The Beige Book said that upward pressure from energy and other inputs is persisting despite reports of a slowdown in the U.S. economy. The market interpreted the data to reinforce expectations that the Fed's two-year monetary tightening campaign is approaching an end.

Crude-oil prices also gained Thursday. Crude for September delivery was last trading up 76 cents at $74.70 a barrel on the New York Mercantile Exchange. In the prior session, crude rallied after U.S. government data showed the biggest gasoline inventory decline in more than three months, while violence in the Middle East is also bolstering energy prices.

"The Mideast situation remains a backdrop focus, where there remains little sign of a ceasefire," said economists at Action Economics.

In the Middle East, Israel broadened its air strikes against Hezbollah, bombing areas in northern, eastern and southern Lebanon, the Associated Press reported. At least 423 Lebanese and 51 Israelis have been killed since the conflict broke out on 12 July.

Israel's justice minister said that the failure of an international crisis conference to reach agreement on a ceasefire on Wednesday was interpreted by Israel as a "permission from the world" to carry on its attacks against Hezbollah, AP reported.

In Rome on Wednesday, international talks on the Mideast conflict dead-ended after Secretary of State Condoleezza Rice clashed with most of the European leaders present who called for an immediate ceasefire. The Bush administration has supported the Israeli military campaign and insisted that the root cause of the violence — the domination of southern Lebanon by Hezbollah — has to be resolved before a ceasefire can be enforced.

Other metals prices also rose. Silver added 38.50 cents at $11.465 an ounce, while platinum rose $6.60 to stand at $1,241 an ounce, palladium gained $3.10 at $320 an ounce and copper moved up 3.55 cents at $3.485 a pound.

The indexes tracking the metals sector posted gains Thursday. The Amex Gold Bugs Index added 1.5% at 332.81 and the CBOE Gold Index rose 1.6% at 145.30.

Metals exchange-traded funds also rose. The StreetTracks Gold Trust ETF was last up 2.3% at $63.41, the iShares Silver Trust ETF added 3% at $114.40 and the Market Vectors-Gold Miners ETF rose 1.9% at $39.07.