Gold at 3-month high as bargain seekers prevail

Gold prices rose Wednesday and settled at a three-month high as initial weakness enticed investors back to the metal. Gold advanced $12.80 during the day and eventually ended up at $1,771.30. Gold rose on bargain hunting despite a stronger dollar.

Feb. 22, 2012, 3:14 p.m. EST
By Claudia Assis
MarketWatch

SAN FRANCISCO (MarketWatch) — Gold futures on Wednesday beat initial weakness to settle at a three-month high as the early price dips only enticed investors back to the metal.

Gold had spent most of the day in the red, as the optimism from the Greek deal faded after downbeat data from China and with investors taking profits given recent gains. Bargain-hunting ensued, however, in the last hour of trading, securing the milestone for the metal.

Gold for April delivery GCJ2 +1.18% advanced $12.80, or 0.7%, at $1,771.30 an ounce on the Comex division of the New York Mercantile Exchange, the highest settlement for gold since mid-November.

The metal, which settled 1.9% higher on Tuesday, spent most of the session in the red.

The decline in prices enticed back some investors, said Jim Steel, an analyst with HSBC in New York.

Helping gold higher were steep gains for platinum and palladium, he said. The gains came mostly on the back of a ongoing strike in South Africa, a top exporter of platinum.

Greece remained in the headlines after Fitch Ratings cut Greece’s sovereign-credit rating to C from CCC, and said that the planned bond swap for private debt holders will amount to a restricted default.

The dollar pushed higher, contributing to the fall of gold and other commodities, but moderated its gains. The ICE dollar index DXY +0.17% , which measures the greenback’s performance against a basket of six rival currencies, rose to 79.207 from 79.023 late Tuesday. See story on dollar gains.

The dollar USDJPY +0.63% topped the key ¥80 level against the Japanese yen, also as economic data from China disappointed. The preliminary result of a survey by HSBC showed Chinese factory activity at a four-month high in February, but at a level that indicated modest contraction. Read more on China’s data.

News on Tuesday that Beijing had cut reserve requirements for lenders had helped gold and other metals rise. The move was an effort to boost lending and increase liquidity in China, a large consumer of raw materials.

Copper and silver kept their losses, with platinum and palladium ending higher.

Copper for March delivery HGH2 -0.07% fell less than 1 cent to settle at $3.83 a pound.

March silver futures SIH2 -0.26% shed 18 cents, paring losses, to end at $34.25 an ounce.

Platinum for April delivery PLJ2 +2.62% rose $35.90, or 2.1%, to $1,720.80 an ounce. March palladium PAH2 +1.86% gained $7, or 1%, to $717.75 an ounce.

That was the highest close for platinum and the first above $1,700 an ounce since late September. For palladium, it was also its best settlement in five months.

A strike at the world’s largest platinum mine, Rustenburg in South Africa, has been under way for four weeks and that has provided support for the metal, analysts at Commerzbank wrote in a note.

“Because the unions are also in dispute among themselves, the strike looks set to continue for the time being, which should lend further support to the platinum price,” they said.

Sister metal palladium “is likely to be pulled upwards in platinum’s slipstream” plus benefit from its own supply concerns, as Russian officials have been quoted as saying Russia will no longer be selling any significant quantities of its state palladium reserves.

“Until recently, around 1 million ounces of these reserves were sold each year, thus constituting a considerable proportion of total supply over the course of many years,” the Commerzbank analysts wrote.

Russia is the No. 1 producer of palladium, but exports have declined in recent years.

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