Gold rises on dollar drop after G20, palladium up

By Frank Tang

NEW YORK (BestGrowthStock) – Gold rose 1 percent on Monday, resuming its rally after its first weekly decline in nearly three months, as a G20 agreement hardened expectations that the Federal Reserve will pump more money into the economy.

Silver surged 1.5 percent and palladium hit its highest price in nearly a decade, as the dollar fell broadly after the G20 agreed to shun competitive currency devaluations but stopped short of setting targets to reduce trade imbalances.

“The lackluster ending of the G20 without resolving a lot of the major currency disputes has allowed the gold to resume the upside,” said James Steel, chief commodity analyst at

HSBC.

Gold has benefited as a safe haven as countries depreciate their currencies to make their exports cheaper to boost economic growth, analysts said.

Spot gold rose 1 percent to $1,340.44 an ounce at 2:55 p.m. EDT. U.S. December gold futures settled up $13.80 at $1,338.90, with COMEX futures volume about 10 percent lower than the 30-day average, preliminary Reuters data showed.

Analysts said the G20 finance ministers on Saturday pointed to a status quo in currency markets and failed to give investors any reason to stop selling the dollar on expectations the Fed will unleash a second round of QE as early as its November 2-3 meeting

“It’s a very bullish picture for gold,” said Carl Firman, analyst at Virtual Metals.

“You have this prospective QE2, dollar weakness, inflation fears,” he added. “After Christmas we’re looking at possibly $1,400.”

Monday’s data showed sales of previously owned U.S. homes rose in September, but remained at subdued levels that did little to undermine the case for additional monetary stimulus next week from the Fed to reinvigorate the economy, a process known as quantitative easing (QE).

Last week, gold lost about 3.1 percent, roughly matching its last significant weekly decline in early July.

Since late July, gold had rallied 20 percent to a record $1,387.10 an ounce on October 14, but has since struggled to maintain traction as the dollar rebounded amid fears expected U.S. monetary easing had been too heavily priced into the market.

The fact that the dollar did not fall further after G20 suggested bullion could weaken in the short term due to a resurgent U.S. currency, said James Dailey, portfolio manager of the Team Asset Strategy Fund (TEAMX.O: ).

PHYSICAL DEMAND SUPPORTS

Robust physical demand from top gold-consuming country India ahead of the key Hindu festival of Diwali, a major gold-buying event, is likely to keep gold prices buoyant.

Platinum group metals were lifted by news that the Obama administration proposed that heavy trucks reduce carbon emissions by 20 percent by 2018 as part of a first-ever fuel efficiency standard for commercial vehicles.

Platinum and palladium are mainly used as autocatalysts to clean tailpipe exhaust fumes from vehicles. That accounts for more than half of worldwide demand for the two platinum-group metals.

Spot palladium rose 3.8 percent to $609.50, after hitting a session peak at $617.50, its highest since mid-2001. Palladium has risen about 50 percent so far this year, nearly double the rise in gold and three times the pace of platinum’s rise.

Platinum gained 1.6 percent to $1,695.17 an ounce, while silver traded up 1.5 percent at $23.60 an ounce.

(Additional reporting by Rebekah Curtis in London; Editing by Lisa Shumaker and Cynthia Osterman)

Gold rises on dollar drop after G20, palladium up