A sharply lower dollar and safe-haven buying amid heightened security concerns sent US gold futures surging more than 1 percent on Monday, as the precious metal finished just below $660 an ounce after hitting a wall of resistance.
A report showed that speculators have sharply reduced their bullish bets, a sign that long liquidation pressure could be easing soon, which led to short-covering on Monday after last week's sell-out, dealers said.
"Certainly it's the dollar. Certainly it's the heightened threat of terrorism again after the incidence in England and Scotland," said Leonard Kaplan, president at Prospector Asset Management. Most-active gold for August delivery on the Comex division of the New York Mercantile Exchange settled up $8.30, or 1.3 percent, at $659.20 an ounce, after dealing between $650.60 and $661.30.
Kaplan said that trading was quiet on Monday, and that small buying could push prices up strongly. The US financial markets will be closed on Wednesday for the Independence Day holiday. He also said that shorts covered their open positions on the back of security fears on Monday. Kaplan also said gold did not break above significant resistance of $660 to 665 an ounce.
Other traders also cited flight-to-safety bids in gold on the news those members of a suspected al Qaeda cell rammed a fuel-packed jeep into a Scottish airport and left two car bombs in London, according to the British police. "People are worried about the terrorist thing, and coppers are all bid," One New York precious metals trader said from the Comex floor. Copper futures ended up more than 2 percent.
Gold is traditionally seen as a safe-haven investment in times of world crises. The dollar tumbled to a 26-year low against sterling and also fell to within half a cent of a record low against the euro.
A weak greenback makes gold, which is denominated in US dollar, cheaper for holders of foreign currencies. Comex estimated final volume at a modest 81,146 lots, and gold options at 9,622. Turnover at Chicago Board of Trade's electronic 100-oz gold futures was 20,195 lots at 2:21 pm Market watchers said that gold was also boosted by last on Friday's Commitment of Traders (COT) report by the Commodity Futures Trading Commission. Speculators slashed their net long positions in US gold by 22 percent in the week up to June 26, as the precious metal's futures hit 5-1/2 month lows, the COT report showed.
Last week, worries about the credit markets prompted jittery investors to sell precious metals and liquidate bullion holdings in streetcar's Gold Shares, the largest gold ETF.
John Reader, head of precious metals strategy at UBS, said in a note to clients that net long positions have fallen to the smallest since October last year even lower than that was seen during the sell-off in early January. In mining news, the three largest gold firms in South Africa, the world's biggest producer of the precious metal, offered workers a 6 percent wage hike on Monday. Spot gold rose to $656.70/$658.20 an ounce, compared with $648.70/$650.20 an ounce late on Friday. The London afternoon gold fix was set at $654.75.
Comex September silver closed up 26.7 cents, or 2.1 percent, at $12.740 an ounce, dealing between $12.510 and $12.755. Spot silver was quoted at $12.63/12.68 an ounce, above the late on Friday quote of $12.36/12.41. London silver was fixed at $12.470 an ounce. Nymex October platinum finished up $8.60 at $1,295.10 an ounce. Spot platinum traded at $1,278/1,282 an ounce. September palladium climbed $2.90 to end at $371.40 an ounce. Spot palladium fetched $366/369.
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