Gold futures in New York rallied to a two-week high on Wednesday, powered by fund and investor buying due to upbeat technical and fundamental signals for the metal heading into 2006, traders and analysts said.
February delivery gold rose $6.20, or 1.2 percent, to close at $516.30 an ounce at the New York Mercantile Exchange's Comex division its highest finish since December 13, after trading between $509.70 and $520.20.
Futures broke above resistance at $513 to $515 in trade as a second day of speculative and fund buying and short covering amid a firmer Euro helped prices recover following a steep pullback before Christmas.
Some analysts also said that a rare move in US Treasuries this week also drew investors into the yellow metal amid doubts about the future health of the US economy.
Benchmark 10-year US Treasury yields fell below two-year yields for the first time in five years this week. That was unusual because investors tend to demand higher yields on longer-dated bonds for protection against the risk of inflation.
"The inverted yield curve, which sent the stock market reeling yesterday, made gold one of the few safe havens," said George Gero, a vice president at RBC Capital Markets Global Futures in New York. "People said 'Where do I put money now?'" and that is why gold rose on the move in yields, he said.
Gold futures were up 2 percent, before pulling back slightly later on. Comex gold has risen 5 percent since touching a one-month low at $492.30 twice last week, on Wednesday and Thursday.
For the year futures are up 20 percent as investors diversify into the metal from currencies, stocks and bonds amid worries about rising energy costs and other uncertainties.
Added to that, gold supply is seen staying reasonably tight while demand for jewellery remains robust. "I think there's new buying here today," said a head dealer at a bank in New York. "There's broader participation here with Europe back from their holidays and some tidying up before the year is through maybe some short covering and fresh positioning across all markets," he added.
With sentiment bullish for 2006, many analysts expect Comex gold to target December's near 25-year high at $544.50 next year.
Traders pegged initial resistance at $525 with support down at $505. Bullion likewise hit a two-week peak, after breaking above resistance at $510 an ounce.
It has climbed by 5.5 percent since falling to a one-month low at $489 last week. Spot gold last fetched $513.70/4.40 in New York, vs. $507.50/508.30 at Tuesday's close.
On Wednesday's afternoon fix in London by bullion dealers was up sharply at $518. On December 12, bullion surged to its highest in almost 25 years, at $540.90.
Volumes remained thin this week in most markets, despite European dealers returning after a Christmas break, as many investors were still away before the New Year holiday.
Estimated Comex volume was 62,000 contracts, against a Very light 27,545 lots on Tuesday. Trading was closed Monday. Gold trading in New York and London will again be shut next on Monday, January 2, for the New Year holiday. March silver rose 12.3 cents to $8.935 an ounce, trading from $8.785 to $9.01, it's highest since December 12.
Spot silver traded to $8.84/87 an ounce, above the previous close at $8.71/74. It fixed at $8.76. Nymex January platinum was up $5.70 at $971.10 an ounce. January-into-April rollover dominated trading before first notice day for delivery next week.
Spot platinum last was at $967/971 an ounce. Thinly traded March palladium surged $7 to end at $265 an ounce. Spot reached $258/262.