NY Gold Bounces As Dollar Turns Lower

Gold futures bounced sharply from two-week lows Thursday as the U.S. dollar gave up initial gains and the metal generated technically based momentum, traders and analysts said.

Traders now will be watching to see how the greenback reacts to Friday's employment report. December gold rose $8.10 to $743.80 an ounce on the Comex division of the New York Mercantile Exchange. As pit trade was closing, the December contract at the Chicago Board of Trade was up $7.90 to $743.70. Comex December silver rose 3 cents to $13.50. As it was closing, CBOT December silver was up 1.6 cents to $13.495. Gold eased early in the morning, a move that traders at the time linked to continued consolidation of the strong run-up from the middle of August through Monday, as well as a firmer U.S. dollar around the Comex open. In fact, when the Comex December futures bottomed at $726.30, it was their weakest price since Sept. 18. But the greenback subsequently sagged again, and traders and investors often buy gold as a hedge against dollar weakness. "The bulls came in and bought with a vengeance," said Ralph Preston, senior market analyst with Heritage West Financial, citing the decline in the dollar and chart-based considerations as reasons. Shortly before the gold pit closed, the euro had risen to $1.4131 from $1.4090 late Wednesday and the dollar index was down 0.128 to 78.445. A "mini bear flag" may be emerging in the dollar index, Preston said. "If we can't close above 79, the dollar is going to roll over and play dead on us," he said. Additionally, November crude was up $1.32 to $81.25, which also tends to underpin the metal. More speculative buying occurred, Preston said. Technicians said both gold and silver dipped below their 20-day moving averages, then attracted buying as they got back above the averages. This stands at $731.40 for December gold and $13.256 for December silver. Silver also managed to close back above its 200-day average of 13.457. The monthly employment report is due out Friday at 8:30 a.m. EDT and is expected to show a rise of around 100,000 non-farm jobs during September. The unemployment rate is expected to edge up to 4.7% from 4.6%. Traders will be watching to see whether a stronger-than-forecast report damps further expectations for a rate-cut from the Federal Reserve and thus supports the dollar, pressuring gold, or whether a weak report will undercut the U.S. currency and thus support the yellow metal. The November federal-funds futures are factoring in a 72% probability of a 25-basis-point rate cut at the Oct. 30-31 meeting of the Federal Open Market Committee. "The Fed may be looking for more reasons to cut interest rates," Preston said. "If we get a bad jobs report tomorrow, this is going to play into their hands." The Bank of England and European Central Bank both left interest rates unchanged Thursday. This was expected and didn't prompt a massive reaction in the markets, traders said at the time.

Platinum and Palladium Run Impressive

On the U.S. economic front, first-time weekly jobless claims rose 16,000 to 317,000, more than the forecast of 310,000. Factory orders fell 3.3% in August, more than the 2.6% drop that analysts forecast. A major news story in the gold world was damage to a mine shaft that trapped 3,200 workers deep underground at Harmony Gold Mining Co.'s (HMY) Elandsrand mine in South Africa. By mid-morning New York time, a rescue effort had already recovered three-quarters of the miners and expectations were that the remainder would be rescued as well. The South African government has ordered the mine to be closed for up to six weeks for an investigation. During the course of the day, a couple of analyst research reports suggested the news didn't have an immediate impact on gold prices, since there is still much above-ground supply of gold held for investment purposes, meaning it doesn't disappear when consumed, as with agricultural commodities. "The bigger story (in the gold market) is the dollar and gold are moving lock-step right now in different directions," Preston said. Meanwhile, January platinum rose $9.50 to $1,378.40 an ounce, while December palladium gained $9.65 to $371.30 an ounce. "With gold's rise, we saw both platinum and palladium make an impressive run," a trader said. "Relatively speaking, the palladium run is probably even more impressive than the platinum." Fund and investment-type buying has occurred in both metals, the trader added. Another trader said some of palladium's strength was tied to options-related activity. Some technical buying may have emerged in December palladium. The metal not only poked above a double-top high so this week at $363 and $363.50 but moved above its 100- and 200-day moving averages, which as of the close were at $363.20 and $364.75, respectively. Platinum was already above these averages.