The US gold futures finished sharply higher on Friday on firmer stock markets and a strike at a gold mine, and as speeches by US President George W. Bush and the Federal Reserve calmed financial markets ahead of the Labour Day holiday long weekend.
"Still, gold is following stocks almost precisely. It's a combination thereof," said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. Most-active gold for December delivery on the COMEX division of the New York Mercantile Exchange settled up $8, or 1.2 percent, to $681.90 an ounce, trading between $673 and $683.90.
Kaplan said that financial markets moved higher in response to Bush's proposal to help homeowners who have subprime mortgages avoid default. President George W. Bush tried to calm financial market turmoil from the credit crisis by announcing proposals intended to prevent homeowners from defaulting on risky mortgages.
Gold and other precious metals were often sold off when the stock markets tumbled, as investors opted for liquidity and to cover margin calls of investments tied up in other markets. Kaplan said that the news of work stoppage at the giant Lihir mine owned by Lihir Gold Ltd in Papua New Guinea triggered Friday's rally in bullion.
The mine, dug out of a long-cooled volcano on Lihir Island about 700 kilometres (435 miles) north-east of Port Moresby, was expected to yield a record 800,000 to 830,000 ounces in 2007 and top 900,000 ounces in 2008, according to company forecasts, making it one of the world's biggest.
Earlier, the Commerce Department said that core US consumer prices rose by a less-than-expected 0.1 percent in July, showing stable prices that held the year-on-year rate of non-food, non-energy inflation to 1.9 percent for the second month in a row.
COMEX estimated final volume at a modest 75,781 contracts, and gold options at 7,805 lots. Turnover at Chicago Board of Trade's electronic 100-oz gold futures was 18,038 lots. In top bullion consumer India, demand for gold in 2007 is likely to jump by 50 percent, from 2006, to record levels as lower prices lift buying interest, an official of the industry-sponsored World Gold Council said on Thursday.
"The early indications are for a very, very strong year for India's gold demand," Philip Olden, managing director and chief marketing officer of World Gold Council, told Reuters. At 2:49 pm EDT (1840 GMT), spot gold was quoted at $673.00/673.60 compared with $664.70/665.50 late Thursday. The London afternoon fix was set at $672 an ounce.
COMEX December silver closed up 27 cents, or 2.3 percent, at $12.230 an ounce, dealing between $11.930 and $12.275. Spot silver was quoted at $12.02/12.06 an ounce, compared with $11.75/11.78 late Thursday. London silver fix was at $11.95. NYMEX October platinum rose $11.50, or 0.9 percent, at $1,271.60 an ounce. Spot platinum fetched $1,262.50/1,269.50. December palladium finished up $2.15 at $337.75 an ounce. Spot palladium was quoted at $329/333.