Gold rallied nearly 2 percent on Monday to close above $640, its highest level in 10 weeks, buoyed by pent-up demand after a US holiday weekend as crude oil prices strengthened and the dollar fell sharply from last week.
Sources said they expected gold prices to follow the dollar's lead and to move in a narrow range, as investors await Federal Reserve Chairman's comments about the economic outlook on Tuesday and the US gross domestic product data on Wednesday.
December gold at the Comex division of the New York Mercantile Exchange accelerated its gain from trading to end up $11.60, or 1.8 percent at $640.60 an ounce, its loftiest level since September 8.
It traded in a range of $636.70 to $641.80. Comex December silver also jumped 45 cents or 3.5 percent to settle at $13.49 an ounce. It traded between $13.435 and $13.585. James Steel, senior analyst at HSBC, said that gold and silver rallied on a much-weaker dollar, strengthening oil prices, and pent-up buying as the markets were closed last on Thursday and Friday for the US Thanksgiving Day holiday.
"There also seems to be some level of political buying in the market as well, as tensions in the Middle East remains high," Steel added. Geopolitical uncertainties usually make gold attractive as a safe-haven investment. A softer greenback, meanwhile, makes dollar-denominated gold cheaper for holders of other currencies.
"I think the market will remain firm, much will depend on if the dollar keeps weakening at this level," Steel said. Estimated Comex volume was 75,000 contracts, and options turnover was 24,000. Turnover in the Chicago Board of Trade's electronically traded 100-oz gold contract was 69,347 contracts as of 3:21 pm EST (2021 GMT) (http://www.cbot.com/cbot/pub/page/0,3181,297,00.html).
The dollar fell to a 20-month low against the euro on Monday on continued concern that the euro zone interest rate outlook is more favourable than that in the United States.
"People felt confident to buy gold during the unexpected weakness from Wednesday to the present on the dollar," said George Nickers, a future broker at FC Stone. Nickers also expected the gold market to be very cautious, as Fed Chairman Ben Bernanke will speak about economic outlook at a meeting on Tuesday.
"If the dollar continues to weaken, I think that will be significantly supportive to the precious metals market," a trader said. "I think (higher gold) is going to stifle physical demand a little bit. But this time of the year, it's not really a big time anyway for physical," the trader said.
"It's really going to be led by what happens to the dollar." US crude, meanwhile, was trading above $60 on Monday after Saudi Arabia's oil minister said Opec might cut output further at its December 14 meeting. Gold is generally seen as a hedge against inflation. Spot gold bullion was last quoted at $640.60/641.60, up from $638.10/$639.10 in Europe late on Friday.
Bullion dealers fixed London's afternoon spot reference price at $638.75. Spot silver was up at $13.460/13.530, up from 13.390/13.460 on Friday. On Monday's fix was at $13.485. Nymex January platinum closed down $6.60 at $1,147.40. Spot platinum last fetched $1,140.00/1,150.00 an ounce. December palladium fell $1.00 to end at $325.00 an ounce. Spot palladium traded at $323/328 an ounce.