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Gold Gains on Continued Safe-Haven Buying

Thursday, 03 Nov 2011 04:51 PM

Gold rose 1.5 percent Thursday, boosted by a surprise interest rate cut by the European Central Bank and safe-haven buying as Greece's teetering government added uncertainty to the future of the European Union.

Bullion -- a traditional safe haven which has recently taken to tracking riskier assets -- notched its biggest gain in 7 trading days as Greece's government backed away from a proposed referendum on staying in the euro, while European leaders talked for the first time of a possible Greek exit to preserve the single currency.

Also supporting gold as a risk aversion trade was U.S. data showing service-sector growth slowed in October and financial market uncertainty created by the demise of U.S. futures brokerage MF Global Holdings.

"It feels like we are back to square one with questions about Greece backing out of the rescue plan and its possible ejection from the EU. Expect the safe-haven angle to keep the entire precious group trading higher," said Miguel Perez-Santalla, vice president of Heraeus Precious Metals Management.

Spot gold was up 1.5 percent to $1,763.60 by 2:40 p.m. EDT (1840 GMT), its third consecutive day of gains.

U.S. gold for December futures settled up $35.50, or 2 percent, at $1,765.10. Trading volume came slightly below its 30-day average.

COMEX gold options floor trader Jonathan Jossen reported heavy trading of bullish option strategies, including out-of-the money calls and bull call spreads, with $2,000 being a popular strike price and most of them expiring in December.

Gold held gains after the ECB cut interest rates by a quarter point to 1.25 percent in a surprise move on Thursday and new ECB President Mario Draghi said the euro zone could subside into a "mild recession" in the latter part of 2011.

But the rate cut effect was likely to be short lived, Ole Hansen, senior manager at Saxo Bank, said, "because it's happened on the back of an increasingly murky situation in Europe where we are receiving Greek news every five minutes."

"Gold has started to revert back into its role as a safe-haven play and this (rate cut) is not changing that," Hansen said.

Gold and other commodities were also underpinned as the dollar fell against the euro. The 25-day negative correlation-log between gold and the dollar was at 0.35, near its tightest in six months, Reuters data showed.

The precious metal extended gains after the U.S. Institute for Supply Management (ISM) said service-sector activity growth in October slowed to its weakest in three months.

Spot silver rose 0.8 percent at $34.48. Platinum climbed 2.4 percent to $1,634.75, and palladium gained 1.1 percent to $653.72.

© 2017 Thomson/Reuters. All rights reserved.

 
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Gold rose 1.5 percent Thursday, boosted by a surprise interest rate cut by the European Central Bank and safe-haven buying as Greece's teetering government added uncertainty to the future of the European Union. Bullion -- a traditional safe haven which has recently taken...
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2011-51-03
Thursday, 03 Nov 2011 04:51 PM
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