Gold futures rallied 3 percent to a reach new two-month high on Thursday as investors bought on rising oil prices, a weak dollar and speculation that China could buy gold for its foreign currency reserves.
The recovery stunned traders as it came so soon after gold succumbed to profit taking on Wednesday, after the Democratic Party wrested control of Congress from Republicans on Tuesday's elections.
Buying turned into a precious metals free for all, with silver rising 4 percent to a two-month high over $13 an ounce, after China central bank governor Zhou Xiaochuan said China was considering many instruments to diversify its $1 trillion foreign exchange reserves, without getting specific. "It certainly means pressure on the dollar against all other currencies," said a dealer at a precious metal refining company.
"Mainly, it's going to be the yen and euro, and there might also be some gold involved, so there was some speculation on that." December gold at the Comex division of the New York Mercantile Exchange settled up $18.50, or 3 percent, at $636.80 an ounce, reversing on Wednesday's $9.40 sell-off.
Estimated volume was 50,000 contracts, and options turnover was 17,000. Turnover in the Chicago Board of Trade's electronically traded 100-oz gold contract was 65,817 contracts as of 2:51 pm EST (1951 GMT) (http://www.cbot.com/cbot/pub/page/0,3181,297,00.html). The benchmark contract fell to $614.50 in overnight electronic trade shortly after on Wednesday's close.
After winning control of the House of Representatives and taking the Senate, Democrats will have more control of economic policy. That prospect sent jitters through the stock market on Thursday, weighing on the dollar and sending money into gold, a day after the Dow Jones industrial stock average reached a record high.
Nymex crude oil was up 2 percent on Thursday on worries about inventories in Europe and the United States. Gold is considered an inflation hedge and recently has tended to trade in tandem with crude, although that relationship weakened in recent weeks as hedge funds rotated investments from energy futures to gold.
Spot gold bullion was at $633.60/4.60, up from the previous close at $615.20/5.95. Bullion dealers fixed London's afternoon spot reference price at $625.25. Comex December silver rose 50 cents to $13.05 an ounce, trading from $12.44 to $13.07, the highest price since September 7.
Spot silver rose to $12.99/3.06 from $12.44/51. It fixed at $12.5950. Nymex January platinum advanced $33.70 to $1,201 an ounce. Spot platinum fetched $1,202/1,208. December palladium rose $10.50 to $338.90 an ounce. Spot palladium traded at $335/340.