US GOLD OPEN - Long-term investor interest pushes gold slightly higher

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Tom Jennemanntom.jennemann@fastmarkets.comSenior North American Correspondent973-204-3383

Orlando, Florida 05/12/2012 - Gold futures rebounded modestly in the US on Wednesday on bargain hunting by the retail community and following the announcement that the Bank of Korea increased its gold reserves by 20 percent last month.

Gold on the Comex division of the New York Mercantile Exchange was last up $3.70 at $1,699.50 per ounce. Trade has ranged from $1,696.40 to $1,708.30.

The yellow metal dipped below the psychologically important $1,700 level on Tuesday for the first time in about a month on institutional fund liquidation and technical selling. But some dip-buyers have since jumped back into the market, providing some support for the market.

“The gold ETFs tracked by Bloomberg saw further inflows of 3.6 tons yesterday. This underlines the interest shown by ETF investors, who are generally thought to take a longer-term view and clearly regard the low price level as an attractive opportunity to buy gold,” Commerzbank AG said in a note.

“Much the same would appear to apply to buyers in India following the sharp fall in the gold price in Indian rupees in recent days,” it added.

Nevertheless, gold's steep drop yesterday was somewhat odd in that it occurred on the same day when the dollar fell below 1.30 against the euro, marking a six-week low. Generally speaking, dollar-denominated commodities tend to perform well when the greenback is weaker.

“The recent surge in daily volatility in gold is probably related to large funds liquidating positions or algorithmic-selling in addition to market's lack of confidence of gold to break $1,800. The US fiscal cliff bickering further eroded market confidence,” Sharps Pixley said in a note.

In the US, Republicans and Democrats are struggling to develop a new budgetary framework to replace the fiscal cliff, which would trigger huge spending cuts and new taxes that could slow growth and tip the US economy back into recession. But the talks have grown increasingly rancorous and a positive outcome is in doubt.

“Gold is also fighting against a lack of forward progress on the US fiscal cliff talks, unless the trade sees the fracturing of GOP House membership as a sign of forward movement,” CME Group said in a market commentary.

“However, with some House GOP members balking at the magnitude of the increased revenue offered from the House Speaker, it is possible that the two sides are actually a little further apart now than might have been expected,” it added.

In gold-specific news, the Korean central bank bought 14 tonnes of gold in November, bringing its holding to 84.4 tonnes. In terms of value, the bank's holdings rose $780 million to $3.76 billion, equivalent to 1.2 percent of total global reserves.

Meanwhile, in wider markets, Germany's DAX and France's CAC-40 were little changed, while light sweet crude (WTI) oil futures for January delivery were up 27 cents at $88.77 per barrel. The most actively traded Comex copper contract last traded at $3.6645 per pound, up 0.9 cents.

As for the other precious metals, Comex silver for March delivery was up 21.2 cents at $33.02 per ounce. Trade has ranged from $32.88 to $33.30.

“Like gold, the silver market has forged a recovery bounce overnight. However, given that March silver forged a high to low slide of $1.75 an ounce in just 3 days, the silver market might have been short term oversold,” CME said.

“Silver might garner some minor lift from a minimal recovery in silver derivative investments yesterday and silver is probably garnering some outside market lift from the residual strength in copper prices,” it added.

Platinum futures for January delivery were up $5.90 at $1,588.80 per ounce and the March palladium contract was at $682.00, down 70 cents.

(Editing by Mark Shaw)
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