Gold up 1.7% on inflation fear after cenbank move
By Frank Tang and Susan Thomas
NEW YORK/LONDON | Wed Nov 30, 2011 1:20pm EST
(Reuters) – Gold rose nearly 2 percent on Wednesday, on track for its biggest three-day rally in more than a month, as a move by major central banks to add liquidity to global markets boosted bullion’s inflation-hedge appeal. Bullion was swept higher on a wave of economic optimism after top global central banks led by the Federal Reserve and the European Central Bank acted jointly to allow European banks to borrow U.S. dollars on easier terms. The S&P 500 surged 3.5 percent and copper, an economic barometer, soared 5 percent.
Gold, a traditional safe haven, has recently taken to track performance of riskier assets such as equities. The correlation between bullion and S&P 500 has risen to its tightest positive link in a year.
“Gold is moving higher alongside every other risk asset, which is a bullish sign. That correlation comes into play perfectly here,” said Adam Sarhan, CEO of Sarhan Capital.
Technical buying also supported prices as the metal broke above its 100-day average to reclaim the key resistance it had breached early last week.
“If gold can break above its recent highs and resistance at $1,800 an ounce, it’s in for another leg higher,” Sarhan said.
Spot gold rose 1.7 percent to $1,744.79 by 12:06 p.m. EST, after hitting a two-week high of $1,749.63 earlier in the session. Wednesday’s rally lifted bullion’s performance in November into positive territory, up almost 2 percent for the month.
U.S. gold futures for February delivery rose $29.90 to $1,748.80.
Silver rose 2.5 percent to $32.70.
Gold had reversed losses earlier after China moved to ease credit strains by cutting the reserve requirement ratio for its commercial lenders for the first time in nearly three years. The move by the world’s biggest consumer of copper also lifted the bellwether industrial metal and helped confirm gold’s status as an inflation hedge.
“Now we had a concerted effort to devaluate currencies together to create inflation. That’s very good for China’s economy and every other economy. That’s the simple reason for copper’s rally,” said COMEX gold options floor trader Jonathan Jossen. Jossen reported a sizable trade on the COMEX floor that involves selling two April $2,100 call options with the buying of each $1,800 April call. The so called “bull call spread” strategy is seen bullish for the underlying gold futures.
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 the recent range-bound trade in the underlying gold futures to continue, traders said. Also boosting gold buying sentiment was surging U.S. pending home sales in October and news that U.S. private sector job growth accelerated in November, prompting some economists to raise their forecasts for Friday’s more comprehensive U.S. government labor report.
Among other precious metals, platinum climbed 1.1 percent to $1,547.65 and palladium gained 3.8 percent to $605.47 an ounce. Leon Westgate, analyst at Standard Bank, said that palladium prices were boosted by a big wave of short covering after a growing number of investors had been recently bearish on the industrial metal.
(Additional reporting by Rujun Shen in Singapore and Amanda Cooper in London; editing by Andrea Evans)