U.S. gold futures eye $800/oz on dollar fall

NEW YORK (Oct 29) Gold futures in New York climbed $2 early on Monday after initially surging to just below $800 in electronic trade, as a dollar slump and record crude oil prices prompted bullion investors to enter the market. "I am bullish this week and next week as well. I think this market had chances and opportunities to pull back last week. And although they attempted to push the market lower, we failed to see too much downside," said Carlos Perez-Santalla, a COMEX floor trader at Hudson River Futures in New York.

At 10:45 a.m. EDT (1445 GMT), most-active December gold on the COMEX division of the New York Mercantile Exchange was up $2.00 at $789.50 an ounce. It hit a low of $787.70. Perez-Santalla said that as long as the price of gold futures held above Friday's trading range, the December contract should go higher.

In overnight electronic sessions, COMEX gold traded as high as $798.30 as the dollar fell to a fresh record low against the euro and a major currency basket and U.S. crude soared to an all-time high above $93 a barrel.

In morning trading, the dollar recovered from its lows, helped by speculation the Federal Reserve will cut U.S. interest rates by only a quarter of a percentage point this week, rather than by half a point. The Fed is widely seen cutting rates by a quarter point to 4.5 percent on Wednesday from the current 4.75 percent, but other analysts said the U.S. central bank may try to cut even more to ease the credit markets and boost the ailing housing sector.

Oil prices jumped to a record high for a third straight day on Monday as Mexico briefly halted one-fifth of its production due to bad weather and the dollar hit new lows.

Gold is used by investors as a hedge against inflation, while a lower dollar makes gold, which is denominated in the greenback, cheaper for holders of other currencies.

The Commodity Futures Trading Commission said in its latest Commitment of Traders report that speculative net long positions in COMEX gold fell 7.7 percent in the week to Oct. 23, after gaining 5.9 the previous week. Net longs in COMEX silver held by noncommercials declined 1.3 percent. A week ago, they rose 2.3 percent. John Reade, head of precious metals strategy of UBS in London, told clients in a note that the large long positions made him wary of recommending purchases at the current levels. "But with positioning so long in all metals -- and no sign of supportive jewellery or industrial demand, a correction, when it comes, will be likely brutal," Reade said. Gold futures had rallied almost $50 to Monday's session high of $798.20 from its low of $749 last Monday.

Other analysts also cautioned that a recovery in the dollar or losses in the stock markets could prompt sharp profit-taking in precious metals. Meanwhile, the New York Mercantile Exchange said the open interest levels of its gold futures breached 500,000 contracts to a new record high.

In addition to the Fed's rate-setting decision on Wednesday, major economic indicators next week, including the advance reading of the third-quarter real gross domestic product and October payrolls report, will likely to set the tone for the precious metals market. Spot bullion traded at $788.35/788.95, compared with the Friday New York close at $783.80/784.30. Earlier, spot gold hit a new 28-year high of $794.40. London bullion dealers fixed the morning spot reference price at $792.50.