Mon Nov 28, 2011 4:01pm EST
* Rises 2 pct to one-week high, biggest gain in 3 weeks
* Volume high as investors roll positions forward
* Option’s implied volatility at one-month low
* Gold-S&P positive correlation tightest in 6 months
* Coming up: U.S. November consumer confidence Tuesday
By Frank Tang and Harpreet Bhal
NEW YORK/LONDON, Nov 28 (Reuters) – Gold rose around 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 euro zone 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 1.8 percent to $1,709.44 an ounce by 3:39 p.m. EST (2039 GMT).
U.S. December gold futures settled up $25.10 at $1,710.80 an ounce. Volume was about 80 percent above its 30-day average, preliminary Reuters data showed, boosted by contract rollover ahead of December’s first-notice day on Wednesday. Trading volume often rises as futures investors roll their positions forward ahead of first-notice day. This is because the closing out of the December contract and the initiation of the new benchmark February is showing up as two lots traded on exchange data.
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 3.3 percent to $32.04 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.
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.Among platinum group metals, platinum rose 0.8 percent to $1,536.99 an ounce, while palladium rose 2 percent to $573.75 an ounce.