Gold ends flat as inverse link with dollar weakens

By Frank Tang

NEW YORK (BestGrowthStock) – Gold prices were little changed on Tuesday, recovering from early lows on technical buying, as the metal’s inverse link with the dollar looked to have broken, at least for now.

After trading lower for most of the day, gold reversed losses as U.S. data showing weak consumer confidence and falling home prices reinforced expectations that the Federal Reserve will unleash a second around of monetary easing as early as its November 2-3 meeting.

Silver rose 1.5 percent to lead the precious metals gains, and palladium surged to a nine-year high for a second consecutive day.

Frank McGhee, head precious metals trader of Chicago-based Integrated Brokerage Services, said gold’s positive turnaround was aided by technical buying as the metal shrugged off a stronger dollar.

“At this point, it’s all technicals. Gold had originally gotten back to trade lock-step with the euro/dollar, but that was disconnected after gold did not confirm a breakdown …,” McGhee said.

The hourly correlation between gold and the dollar, which tend to move in the opposite direction, suggested a weak inverse link between the two. Gold has now closed in the same direction with the U.S. currency only once in the past 10 days, Reuters data showed.

Spot gold was down 0.1 percent at $1,337.17 an ounce at 2:12 p.m. EDT. U.S. gold futures for December delivery settled down 30 cents at $1,338.60, with trading volume in line with their 30-day average.

Data on Tuesday showed the U.S. economic recovery is still fragile, with consumer confidence remaining near historically low levels and home prices falling again after gaining earlier in the year.

“There was consumer confidence data … it failed to weaken the dollar,” said analyst Eugen Weinberg of Commerzbank. “It is maybe helping a little bit as well — otherwise gold is vulnerable to further profit taking.”

Investors were awaiting clues from next week’s Fed meeting on whether the U.S. central bank will pump more money into the economy by resume buying government debt to accelerate growth, a process known as quantitative easing.

Easier monetary policies could significantly benefit gold because of a weaker dollar and possible long-term inflation, analysts said.

Prices hit a record $1,387.10 an ounce this month as the dollar slid amid expectations the Fed would vote in favor of QE at its upcoming policy meeting, but retreated as investors worried the prospect had become too heavily priced in.

“At the moment this (QE) is the most important factor,” said Commerzbank’s Weinberg. “By now, it should have been priced in to a greater extent. At the moment the market is buying the rumor and I wouldn’t be surprised if it sells the fact when it comes.”

The U.S. dollar rose as the euro again failed to hold above the $1.4000 level in the prior session, leaving investors wary of betting against the greenback on Tuesday.

Gold typically falls as the dollar rises and vice versa, with strength in the greenback making dollar-priced commodities more expensive for holders of other currencies.

PHYSICAL DEMAND SUPPORTS

Gold’s recent price dip has attracted some physical interest back to the market in key gold-buying centers like India, the world’s biggest bullion consumer. Buyers there are stocking up ahead of the key Hindu festival of Diwali, a major gold-buying event, dealers said.

Among other precious metals, palladium rose 2.5 percent to $621.55 an ounce, after setting a nine-year high for a second consecutive day at $624.55 an ounce.

The ratio of platinum to palladium — the number of ounces of palladium needed to buy an ounce of platinum — fell to its lowest since mid-2004 as palladium outpaced platinum’s gains.

UBS said in a note that palladium, mostly used as autocatalysts, has been boosted by a combination of rising emerging market auto sales, tightening emission legislation in China, little immediate threat from electric vehicles, low mine supply growth, and limited Russian stockpile sales.

Platinum climbed 0.1 percent to $1,694.50 an ounce, and silver rose 0.9 percent to $23.71 an ounce.

(Additional reporting by Jan Harvey and Michael Taylor in London; Editing by Walter Bagley)

Gold ends flat as inverse link with dollar weakens