Gold Climbs Back Above $1,600/Oz As Dollar Weakens; Technicals Add To Momentum 5 July 2012, 10:06 a.m.
By Allen Sykora
Of Kitco News
http://www.kitco.com(Kitco News) - Most-active gold futures climbed above $1,600 an ounce Wednesday for the first time in two weeks on strength in the euro after a European Central Bank council member said there are arguments in favor of Europe’s rescue fund getting a banking license.
Technical-chart buying added momentum to the rally.
As of 9:52 a.m. EDT, gold for August delivery was $23.50, or 1.5%, higher at $1,599.70 per ounce on the Comex division of the New York Mercantile Exchange. It traded as high as $1,606.40, its most muscular level since July 6. September silver was up 31.9 cents, or 1.2%, to $27.13 an ounce. Spot gold was $20.40 higher to $1,600.60.
“It’s a function of dollar weakness,” said Jim Comiskey, senior account executive with Archer Financial Services.
The euro was up to $1.2134 from $1.2061 late Tuesday.
“Early this morning, there was a headline that one of the ECB council members said it might be a good idea to grant the ESM (European Stability Mechanism) a banking license,” said said Afshin Nabavi, head of trading with MKS Finance. “On the back of that, the euro started moving higher.”
And, he continued, gold surged with it.
ECB policymaker Ewald Nowotny, who is also chief of Austria’s central bank, said there “there are pro arguments” for giving the ESM a banking license, although there are not yet specific discussions within the ECB. This would give the ESM access to ECB funds and allow for greater leverage of existing contributions for aid to indebted nations, said Brown Brothers Harriman. Otherwise, markets had been worried about whether the ESM would have enough funds if Spain and Italy need sovereign bailouts.
“The fact that the comments come from one of the ‘creditor’ countries is noteworthy,” BBH said. “We know many trial balloons have been released in recent weeks, and so warn against getting too excited about this idea. However, it could signal a softening stance as the crisis intensifies and necessitates bolder action.”
The dollar also may have been hurt by reports that the Federal Reserve is mulling more possible stimulus, BBH said.
Gold and silver are continuing a bounce from support levels, Comiskey said.
“Gold tried to take out the $1,560, which is big support, and was unable to do so. So we’ve got a combination of a short-covering rally and dollar weakness,” he said. Short covering is buying by traders to exit, or offset, positions in which they previously sold.
Likewise, Comiskey said, silver bounced after support held around $26.50 to $26.60.
Meanwhile, the gold market generated technical momentum, said Charles Nedoss, senior market strategist with Kingsview Financial. The August futures are back above their 10-day moving average of $1,582.60, their 20-day average of $1,585.60 and 50-day average of $1,588.40.
“Gold has taken out some real big levels,” Nedoss said. “We came through the 10-, 20- and 50-day moving averages, and you definitely ran through some stops above $1,600.”
Stops are pre-placed orders to buy or sell that are triggered when certain chart points are hit.
Meanwhile, the physical market for gold remains quiet, Nabavi said. Previously, there was a pick-up when gold was below $1,570 an ounce, he reported. “But that has quieted down now.”
By Allen Sykora of Kitco News;
asykora@kitco.com