Gold rebounds from early lows as dollar eases

By Frank Tang

NEW YORK (BestGrowthStock) – Gold was little changed on Monday, rebounding from sharp earlier losses as the dollar weakened, increasing the metal’s investment appeal with bullion finding support at the bottom of its three-month rising channel.

Silver resumed its rise after Friday’s losses, as investor buying lifted holdings of silver exchange traded funds to a record high.

Gold slipped below $1,360 an ounce earlier in the session as the U.S. currency rebounded from recent hefty losses, with investors holding the dollar worried that expected U.S. monetary easing had already been too heavily priced in.

The dollar’s rally later ran out of steam and, turned slightly weaker against the euro as U.S. equity markets extended gains on a stronger-than-expected earnings from Citigroup. (.N: )

Technical buying also triggered bullion’s recovery from early lows, as prices found support within a rising channel which started back in late July.

“At this point, it’s all technical trade. We’ve held the technical lows in the channel, and that takes some of the correction pressure off the market each time we fall. It lessens the likelihood of an extremely big break,” said Frank McGhee, head precious metals trader of Integrated Brokerage Services.

Spot gold was trading up 0.1 percent at $1,371.70 an ounce at 12:38 p.m. EDT (1638 GMT). U.S. gold futures for December delivery were up 20 cents at $1,372.20.

Gold, which is denominated in dollars, tends to move in the opposite direction to the U.S. currency. The correlation between bullion and the U.S. currency has increased to a negative 0.67, its strongest inverse relationship in 10 months.

Gold’s rally to a series of record highs in recent weeks, peaking at $1,387.10 an ounce, has been heavily predicated on weakness in the dollar. It has struggled to maintain traction as the dollar has recovered, however.

On Friday, gold retreated as the dollar rose and Federal Reserve Chairman Ben Bernanke gave his most explicit signal yet that the U.S. central bank would ease monetary policy further, but did not provide details on how aggressively it might act.

Investors had increased bets against the dollar in recent weeks amid expectations the Fed would unveil a second round of quantitative easing as early as November.

Gold tends to benefit from losses in the dollar as these lift the metal’s appeal as an alternative asset and make dollar-priced commodities cheaper for other currency holders.

While the metal has steadied after its recent run higher, analysts say it is set to remain firmly underpinned for as long as further quantitative easing remains on the table — though the scope and shape of this remains unclear.

OVERSTRETCHED

Also on charts, the precious metal seems to have become overstretched after rallying nearly 12 percent in the six weeks to its mid-October record high, analysts said.

Its relative strength indicator was at or above 70 – a level widely seen to indicate overbought conditions – in a nearly unbroken run from September 15 to Friday, Reuters data showed.

“Since gold broke out of its previous $1,265 high on September 14, it has not experienced two consecutive negative daily closes,” said UBS analyst Edel Tully in a note. “Gold is overdue a consolidation; it needs to adjust to $1300’s price levels and a short-term pullback would not be a bad thing.”

Among other precious metals, silver rose 0.7 percent to $24.42 an ounce. Holdings of the world’s largest silver-backed exchange-traded fund, New York’s iShares Silver Trust, rose to a record 10,224.05 tonnes on Friday.

The fund has had inflows of more than 880 tonnes since mid-September, worth some $679.3 million at today’s prices.

Platinum was up 0.2 percent at $1,691.50 an ounce, while palladium edged up 0.2 percent at $586.

Prices at 12:47 p.m. EDT

(Additional reporting by Jan Harvey in London; editing by Sofina Mirza-Reid)

Gold rebounds from early lows as dollar eases