Gold Rebounds as Prices at Cheapest in Four Months Spur Demand

by on January 7, 2013 5:06 am GMT

Gold gained, rebounding from the worst run of weekly losses since 2004, as a drop to the cheapest in more than four months lured buyers amid record low interest rates in the U.S. Silver, platinum and palladium advanced.

Spot gold rose as much as 0.3 percent to $1,660.50 an ounce, and traded at $1,660.25 at 10:20 a.m. in Singapore. Bullion tumbled to $1,625.85 on Jan. 4, the lowest price since Aug. 21, after minutes from the U.S. Federal Reserve indicated that its bond-buying program may end this year. Gold’s 14-day relative strength index was at 41 today after six weeks of losses, with a reading below 30 signaling prices may be poised to rebound.

Fed officials are debating when to end asset purchases aimed at fueling growth and reducing unemployment that held at 7.8 percent in December, according to data on Jan 4. The U.S. central bank said last month said it will keep its benchmark interest rate near zero as long as joblessness is above 6.5 percent and inflation is seen to be no more than 2.5 percent.

Expectations are for weaker U.S. growth in the first half, “which should ensure interest rates remain low, supporting gold prices,” said Sun Yonggang, a macroeconomic strategist at Everbright Futures Co., a unit of one of China’s largest state- owned investment companies. “As the economy accelerates in the second half, that may be the start of lower gold prices.”

Bullion also rebounded after reaching technical support along the lower Bollinger Band on Jan. 4, signaling buy orders may be clustered close to it, according to data compiled by Bloomberg. Gold has traded between the middle and lower Bollinger Bands for the past two weeks. These indicators, representing so-called technical resistance and support levels, are about $1,686.41 and $1.635.25 today.

ETP Holdings

Gold for February delivery advanced 0.6 percent to $1,659 an ounce on the Comex in New York. Holdings in exchange-traded products, which reached a record 2,632.516 metric tons on Dec. 20, stood at 2,623.234 tons on Jan. 4 after rising 0.1 percent, data compiled by Bloomberg showed.

Cash bullion of 99.99 percent purity climbed 0.5 percent to 333.10 yuan a gram ($1,654.50 an ounce) on the Shanghai Gold Exchange. Volumes for the benchmark cash contract expanded to a one-year high of 9,309 kilograms on Jan. 4. Gold for June delivery added 0.6 percent to 338.73 yuan a gram on the Shanghai Futures Exchange, rebounding from a two-week low.

Cash silver rose 0.5 percent to $30.3525 an ounce, after dropping to the lowest level since August on Jan. 4. Spot platinum gained 0.6 percent to $1,567.25 an ounce, snapping a two-day decline. Palladium climbed 0.4 percent to $691.25 an ounce, also advancing for the first time in three days.