US gold futures reversed initial losses to trade higher early on Friday, boosted by options-related buying and safe-haven demand amid signs that the global credit squeeze will continue to weigh on markets.
"There's been heavy buying of call options shortly after the open on the COMEX floor, and that's at least in part responsible for the move," said Andy Montano, director of bullion dealer ScotiaMocatta in Toronto.
At 9:49 am EDT (1349 GMT), most-active December gold on the COMEX division of the New York Mercantile Exchange was up $6.60 at $724.50 an ounce, trading between $712.70 and $726.50. "There seems to be some safe-haven buying," said Montano, citing the news of British mortgage lender Northern Rock and China raising its interest rates.
Britain's financial authorities stepped in to rescue mortgage lender Northern Rock on Friday as the group, which has lent aggressively to home buyers, fell victim to the sharp rise in borrowing costs between banks.
Meanwhile, China raised interest rates on Friday for the fifth time this year, quickening the pace of monetary tightening days after inflation jumped to the highest level in nearly 11 years.
George Nickas at FC Stone in New York said that bullion investors should be cautious as trading volume was thin and many traders were on the sidelines before the Federal Reserve's rate-setting meeting next Tuesday. Nickas cited short covering before the weekend for gold's early rally.
The dollar fell versus the euro and yen on Friday after data showed US August retail sales rose at a slower-than-expected pace, supporting the view the Federal Reserve may need to cut rates aggressively at a meeting next week.
Sales at US retailers rose a smaller-than-expected 0.3 percent in August and they recorded the biggest decline in almost a year when car sales were stripped out, a government report showed on Friday.
Also, US crude slipped early on Friday after setting a record high above $80 a barrel early this week. Spot gold was quoted at $715.40/716.20, compared with the $708.90/709.70 an ounce registered late Thursday. The London morning gold fix was set at $706.75.
COMEX December silver was up 14.5 cents, or 1.1 percent, at $12.825 an ounce, dealing between $12.585 and $12.865. Spot silver traded at $12.64/12.69 an ounce, down from $12.51/12.56 late Thursday. London silver was fixed at $12.50 per ounce. NYMEX October platinum was up $1.30 at $1,301.20 an ounce. Spot platinum was quoted at $1,294/1,298. December palladium fell $3.35, or 1 percent, to $333.25 an ounce. Spot palladium was at $330/334.