Gold extends gains on rebound from near six year lows

11/22/2015 11:30:08 PM

(MENAFN- The Peninsula) Sales assistants reach for gold rings in a glass case to show to customers at a jewellery store in Hefei. (file photo)

By Jan Harvey

LONDON: Gold edged higher on Friday extending the previous day’s rally as expectations that the Federal Reserve will take its time over raising interest rates prompted a wave of short covering after prices hit near six-year lows.

The market had become over extended on the downside after falling to its lowest since February 2010 at $1064.95 an ounce on Thursday analysts said. A suggestion in the minutes of the Federal Reserve’s last meeting that the bank would move cautiously on rates prompted the short covering.

Spot gold was up 0.1 percent at $1082.90 an ounce at 1445 GMT while U.S. gold futures for December delivery were up $3.70 an ounce at $1081.60. The metal is set to end the week little changed after prices jumped 1.1 percent on Thursday.

“What we’re seeing now is a bit of short covering moving on from the fact of a rate rise in December and questioning what the path is to tightening rates in 2016” Mitsubishi analyst Jonathan Butler said.

“We’re down towards the bottom end of the trading channel we’ve seen in the year to date and it was in oversold territory very recently. We seem to have bounced off the lows for now.”

Speculation that the Federal Reserve will lift interest rates for the first time in nearly a decade this year has intensified since the release of strong U.S. jobs data earlier this month which triggered a sharp drop in gold prices.

Higher rates tend to weigh on gold as they lift the opportunity cost of holding non-yielding assets while boosting the dollar.

That is likely to keep up pressure on gold which has fallen 5 percent this month and is down 8.5 percent so far this year though this wave of short covering may not yet be over.

“We are still unclear how much of a rate hike there will be by the Fed but given all the comments which we had from the FOMC minutes one element is clear—it is not going to be very aggressive” Ava Trade market analyst Naeem Aslam said.

“Hence we have seen the massive selling pressure getting squeezed out.”

Chinese banks are growing alarmed by a rising number of defaults among jewellery manufacturers prompting them to review new gold lending more carefully according to sources with direct knowledge of the issue.

Silver was up 0.1 percent at $14.23 an ounce platinum was up 0.6 percent at $858.50 an ounce and palladium was up 2.3 percent at $548.72 an ounce.

Reuters

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