Physical demand and buying by funds drove US gold futures to end higher for a fourth straight day on Tuesday, as a weaker dollar also helped lift the precious metal contracts to a two-week high. Silver and platinum also followed gold to hit new peaks.
Most-active gold futures for April delivery on the Comex division of the New York Mercantile Exchange settled up $4.70 at $659.00 an ounce. They traded between $653.30 and $662.00, the loftiest level since March 2. David Meger, metal analyst at Alaron Trading, said that a resurgence of gold demand, particularly from Asia, drew buying interest back into the gold market.
"We have another round of fund- or speculative-type activity. More importantly than anything else, we had that physical demand element come back to the market," Meger said. "In today's action particularly, the ability to get up through yesterday's high of $657 and through that March 9 high of $659.80 shows that the market certainly hit some stops above those levels," he said. The April contract was up nearly 9 percent from its five-month low in January, but it was still down from its 2007 peak of $692.50 on February 27 after investors were rattled and stock markets saw some volatile price swings in the past few weeks.
Comex estimated final exchange floor volume at a relatively heavy 30,000 lots, and options turnover at 33,000. Turnover in the Chicago Board of Trade's electronically traded 100-oz gold contract was 30,492 lots as of 2:31 pm EDT (1831 GMT). (http://www.cbot.com/cbot/pub/page/)
Carlos Perez-Santalla at Hudson River Futures also said that on Tuesday's rally was largely due to fund buying. Gold was also boosted by the notion of a weaker dollar after China's central bank governor Zhou Xiaochuan said in an interview published on Tuesday that China would stop stockpiling its massive foreign exchange reserves.
The bulk of China's currency reserves are held in US dollars. The dollar fell sharply against the yen after the news, but the greenback also slipped about 0.1 percent against the euro.
Gold prices usually moves in the opposite direction to the dollar. The pace of US home construction rose 9 percent in February, beating analysts' predictions and running against dismal news in the supreme home financing sector, a government report showed on Tuesday.
US stocks also traded higher on Tuesday following the positive housing report.
"We've just broken past some tough technical resistance points at the $658 to $660 level and should hold these gains in front of the FOMC meeting," Neal Ryan, director of economic research at Blanchard & Co, said in a daily report.
Investors are looking for signals from comments about the US economy out of the Federal Reserve's rate-setting meeting, which begins on Tuesday and is due to conclude on Wednesday. Ryan said that he expected precious metals traders would take cues from the language of the Fed minutes.
In other news, US brokerage Merrill Lynch raised its long-term forecasts for gold prices, citing positive supply-demand fundamentals, while keeping its view unchanged that bullion could hit $700 an ounce by mid-May because of buying for the Indian wedding season.
Merrill also lifted its price views for silver. Spot gold was quoted at $658.40/9.40, above $653.30/4.30 an ounce on Monday. London's afternoon gold fix was $659.00 an ounce. Comex may silver finished up 13.7 cents, or 1 percent, at $13.370 an ounce, traded in a range between $13.220 and $13.485 a two-week high.
Spot silver rose to $13.29/3.34 an ounce, up from $13.16/3.19 late on Monday. The London silver fix was $13.25. Nymex April platinum edged up 60 cents to end at $1,235.30 an ounce.
It hit a session-high of $1,237.70, loftiest since March 2. Spot platinum was also higher at $1,230.00/35.00 an ounce. June palladium settled up $1.20 at $355.30 an ounce. Spot palladium was quoted down at $350.00/54.00 an ounce.