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Gold futures rise on weaker US dollar and stronger data

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By Matt Day

GOLD climbed to the highest level in almost two months overnight as investors sought the precious metal as an alternative to the slipping US dollar after a batch of upbeat global economic data.

Gold for April delivery, the most actively traded contract, rose $US9.10, or 0.5 per cent, at $US1,749.50 a troy ounce on the Comex division of the New York Mercantile Exchange, the highest settlement price since December 2.
The dollar eased as investors dumped the perceived safe-haven currency after relatively upbeat readings on everything from Chinese and European manufacturing to US private-sector hiring. A weaker dollar can lift dollar-denominated gold and other commodities by making the futures appear cheaper for investors using other currencies.

Gold and the dollar have an added link, as some investors use gold as a hedge against instability in the currency. The ICE US Dollar Index overnight touched its lowest level since December 9.

“It’s hard to look at this rally and believe that it is not going to continue,” said Dave Meger, director of metals trading with brokerage Vision Financial Markets. “Obviously if Europe fell apart once again you’d start seeing selling pressure across the board, but shy of that I think we have the environment for higher metals prices.”

Gold futures have gained for five of the last six sessions after the Federal Reserve surprised market participants by releasing a forecast for low short-term interest rates into 2014.

Gold’s gains since the financial crisis have been fuelled in part by low interest rates as central banks in the US and Europe tried to support economic growth. In response, investors in search of higher returns than they could expect with interest-bearing assets turned to gold.

Such artificially low rates could spell continued advances in gold this year, HSBC analyst James Steel said in a note. “Gold tends to be one of the few beneficiaries from sustained periods of market distortion, as uncertain investors seek safe havens.”

While investors in the US and Europe have rebuilt their holdings in gold after many cashed out in late 2011, there are signs that demand from emerging markets is also ticking higher.

“Despite high prices, we have seen a resurgence in Indian physical demand,” said Marc Ground, an analyst with Standard Bank, in a note.

India is the world’s top gold importer. Buying slowed there late last year as the rupee fell against the dollar, keeping local gold prices high despite the declines in dollar-denominated gold.