Gold Hits 5-Week High as Dollar Slips, Commods

Published: Monday, 11 Jan 2010 | 6:20 AM ET

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Gold prices rose 1.7 percent in Europe on Monday to a five-week high of $1,157.70, benefiting from weakness in the dollar as traders bet on U.S. interest rates staying low in the immediate future.

AP

Spot gold [GCC1 1155.4 17.2001 (+1.51%) ] was higher. U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange rose $19.00 to $1,157.90 an ounce.

"The dollar is playing a big role this morning, threatening to break through $1.43 against the euro," said Walter de Wet, an analyst at Standard Bank.

"But also with the Chinese data out, people are expecting a faster recovery in global growth, which could see some gold buying for those who believe it is an inflation hedge," he said.

Growth in China's imports and exports last month beat expectations, providing fresh evidence of economic recovery.

One analyst said the trade data suggested December industrial output grew by more than 25 percent from a year earlier.

The U.S. dollar dropped afresh on Monday after suffering its biggest fall in six weeks in the wake of disappointing U.S. jobs data on Friday and comments from a Federal Reserve official that U.S. interest rates are likely to stay low for some time.

Weakness in the U.S. unit boosts gold's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.

Other commodities rose on the back of the dollar's decline, with oil jumping more than 1 percent and base metals also climbing. Industrial commodities are benefiting from stronger-than-expected Chinese import data.

Gold tends to track crude prices, as the metal can be bought as a hedge against oil-led inflation.

The upbeat Chinese data also helped lift equities, with Asian stocks hitting a 17-month high and energy and mining stocks leading European shares higher in early trade.

In India, historically the world's largest gold consumer, physical offtake abated as prices rose to a three-week high.

Dealers say they expect demand to return at around 16,700-16,800 per ten grams, though prices are currently above 17,000 rupees.

Outflow

In New York, the world's largest gold-backed exchange-traded fund reported a near-4 tonne outflow on Friday.

Its holdings slipped just over 14 tonnes or 1 percent in the first trading week of the new year, compared with a rise of more than 7 tonnes in the same period of 2009.

Deutsche Bank said in a research note it expects inflows into precious metals exchange-traded products (ETP) to slacken this year as investors divert attention to more volatile commodities.

"We don't expect extreme outflows from precious metals ETPs," it said. "However, growth rates are likely to be slower than 2009."

Among other precious metals, silver tracked gold higher to $18.76 an ounce against $18.44.

Platinum touched a 16-month high of $1,581 an ounce and was later at $1,580 against $1,574.50, while palladium was at $428 against $425.50.

Both platinum and palladium have benefited from the launch of the first U.S.-based ETPs backed by the metals on Friday.

"We think platinum is poised to substantially benefit from increased investment demand given its already favorable fundamental outlook," said Morgan Stanley in a note.

Platinum group metals traders will be closely eyeing news on global car sales for clues as to future demand for the autocatalyst materials.

Industry figures released on Monday showed China's auto sales surged past the United States to reach record levels in 2009, underscoring China's importance to the global auto industry as the world's biggest market.

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