Profit-taking weakened gold futures early Wednesday after Democrats wrenched control of the House of Representatives from the Republicans and stood at the cusp of retaking the Senate in midterm US elections on Tuesday.
But prospects for gridlock in Washington between a Democratic Congress and an unpopular Republican president were expected to keep pressure on the dollar and support gold, which rallied to two-month highs in the run-up to the election.
Dealers said it was "buy the rumour, sell the news" as a Democratic sweep of at least one house of Congress was priced into the gold market.
December gold at the COMEX division of the New York Mercantile Exchange at 9:01 am EST (1401 GMT) was down $2.40 at $625.40 an ounce. It fell to $620.30 at the open, then bounced, but was well below its overnight high of $629.20.
"The general view, especially in Asia, is that the Democrats in power will not be good for the dollar, so long term, things will reverse. But people had been positioning themselves for this outcome," said Carlos Perez-Santalla of Hudson River Futures.
Gold rose to $632.20 on Monday, its highest since early September. An alignment of bullish factors lifted gold from a four-month low of $563.50 on October 4. Now the market is starting to bet that gold has enough momentum to revisit 26-year highs set earlier this year above $750.
Technically, trend-following commodity funds added to long positions every time gold cleared an important chart point, but worries about the dollar, economic growth, the unpopular war in Iraq and nuclear saber rattling by Iran and North Korea encouraged the buying of gold as a safe haven and portfolio diversifier.
"I think there was a little bit of caution that came into the market, although I don't necessarily think a Democratic Senate is bearish for gold," said Bill O'Neill of New Jersey-based commodity research firm LOGIC Advisors.
Spot gold bullion was at $623.20/3.95, down from the close at $624.30/5.30. Bullion dealers fixed London's morning spot reference price at $625.50.
COMEX December silver was 3.5 cents lower at $12.64 an ounce, trading from $12.71 to $12.52. Spot silver was hardly changed at $12.57/64 versus $12.56/63 late Tuesday. It fixed at $12.60.
NYMEX January platinum was down $23.30 at $1,169 an ounce. Spot platinum was priced at $1,166/1,171. December palladium slipped $6.30 to $328 an ounce. Spot palladium fetched $323/328.
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