Tags: Gold | Jumps | Euro | Hopes

Gold Jumps 2% on Euro Hopes in Biggest Gain in 3 Weeks

Monday, 28 Nov 2011 01:30 PM

Gold rose 2 percent on Monday to above $1,700 an ounce, its biggest one-day gain in three weeks, swept higher by hopes that new proposals may emerge out of Europe to tackle the region's debt crisis.

The metal rose in tandem with equities after Germany and France stepped up a drive for coercive powers to reject eurozone members' budgets that breach EU rules, easing mounting European sovereign debt fears.

Bullion, which has swung between gains and losses in the past seven straight sessions, surged as Wall Street, commodities and crude oil broadly rose and the dollar fell on resurgent investor appetite.

Some analysts said that gold — a traditional safe haven that has recently tracked riskier assets — is still vulnerable to future sell-offs unless it can recoup its safe-haven appeal amid economic uncertainty. A poor technical outlook could also limit bullion's gains.

"The rally in gold today to a great extent has been short covering. We have a process in Europe that is not going to be over any time soon," said Axel Merk, portfolio manager of Merk Funds with $800 million assets under management.

"I do think that gold will resume its position as an inflation hedge and hedge against the various uncertainties in the world," he said.

Spot gold rose 1.9 percent to $1,710.38 an ounce by 2:01 p.m. EST.

The 25-day implied volatility in gold options, a gauge of bullion market risk, has fallen to its lowest in around a month, indicating some investors are expecting steadier, rangebound trade in underlying gold futures, traders said.

Spot silver tracked gold to rise 3.6 percent to $32.15 an ounce.

Earlier in the session, gold touched a one-week high at $1,719.89 an ounce, near its 100-day moving average: a key technical support it breached early last week.

"Right now caution is paramount as gold appears to be consolidating its recent move between support at its 200 DMA and resistance" at its three-month downward trend-line near $1,750 an ounce, said Adam Sarhan, CEO of Sarhan Capital.

Sarhan said the fact that gold does not rally in response to uncertainty in Europe suggests either the bears are getting stronger, or very high correlation between gold and other risk assets.

GOLD-EQUITIES CORRELATION

The positive link between gold and equities rose to its tightest in six months on Monday. The 25-day correlation-log between gold and the S&P 500 was above 0.5, highest since late May.

"With the continued dollar strength, or a possible bounce in equities that makes gold ownership less immediately 'needed', we could target a down-move to below $1,620," said Rick Bensignor, chief market strategist of Merlin Securities.

U.S. December gold futures settled up $25.10 at $1,710.80 an ounce. Volume was about two-thirds above its 30-day average, preliminary Reuters data showed, partly driven by contract rollover ahead of December's first-notice day on Wednesday.

"In the short-term, gold is not acting any differently from commodities or equities. And where we go from here depends on what solutions we get (for the eurozone crisis)," Matthew Turner, analyst at Mitsubishi said.

Investors are likely to closely watch a meeting by eurozone ministers on Tuesday, as detailed operational rules for the region's bailout fund await approval. Approval would pave the way for the 440 billion euro facility to draw cash from investors.

Among platinum group metals, platinum rose 0.6 percent to $1,534.48 an ounce, while palladium rose 2.1 percent to $574.20 an ounce.

© 2017 Thomson/Reuters. All rights reserved.

   
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Gold rose 2 percent on Monday to above $1,700 an ounce, its biggest one-day gain in three weeks, swept higher by hopes that new proposals may emerge out of Europe to tackle the region's debt crisis. The metal rose in tandem with equities after Germany and France stepped up...
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2011-30-28
Monday, 28 Nov 2011 01:30 PM
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