Gold Gains Most in 14 Months as Oil Rally Revives Demand

San Francisco (Dec 1)  Gold and silver futures climbed the most since September 2013 as a rally for oil prices revived demand for the metals as stores of value.

Crude futures in New York rose as much as 4.8 percent, rebounding from a five-year low. Gold earlier fell to a three-week low after Swiss voters rejected a measure that would’ve required their central bank to hold a portion of its assets in bullion. Prices erased this year’s losses as Moody’s Investors Service cut Japan’s credit rating and U.S. holiday spending slowed, fueling concern that global growth will falter.

Bullion dropped to the lowest since 2010 last month, partly on waning demand for a hedge against inflation. Federal Reserve officials have warned that lower energy prices could hold down consumer costs in the near term. Oil’s advance today is the first gain in more than a week.

“What’s driving the gold market here is crude,” Tai Wong, the director of commodity products trading at BMO Capital Markets Corp. in New York, said in a telephone interview. “The move is snowballing as recent short covering and micro-term momentum buyers go long.”

On the Comex, gold futures for February delivery jumped 3.6 percent to settle at $1,218.10 an ounce at 1:58 p.m. in New York, the biggest gain since Sept. 19, 2013. The price is up 1.3 percent this year.

The metal extended gains after prices traded “far enough above $1,180” to signal a “key reversal day,” Wong said. Gold broke the $1,180 support in November, after rebounding from the level in the previous 16 months.

Open Interest

Estimated open interest was near 373,000 contracts on Nov. 28, down from about 469,000 a week earlier, exchange data compiled by Bloomberg show. Investors sold gold positions in the past week ahead of the Swiss vote on the bullion measure and as options on December futures expired, said George Gero, a precious metals strategist at RBC Capital Markets.

“The funds were fleeing instead of rolling over, which left the funds under-invested for today’s rise,” Gero said in a telephone interview from New York.

The downgrade for Japan and slower U.S. retail sales “suggest lower interest rates and a flight to quality, and that’s good for alternative assets like gold and silver,” Mike McGlone, the research director at ETF Securities U.S. in New York, said in a telephone interview.

Money Supplies

Prices have rebounded 7.8 percent since touching $1,130.40 on Nov. 7, the lowest since 2010. Central banks in Europe and Japan are trying to revive weakening economies with more stimulus, reviving demand for precious metals amid increasing money supplies.

While spot gold quoted in dollars is up about 1 percent this year, bullion denominated in euros has climbed 11 percent and in yen 14 percent.

Silver futures for March delivery jumped 7.3 percent to $16.692 an ounce on the Comex, the largest advance since September 2013. Prices rose as much as 8.1 percent.

Aggregate trading in both gold and silver doubled compared with the average in the past 100 days, according to data compiled by Bloomberg.

On the New York Mercantile Exchange, platinum futures for January delivery climbed 2.5 percent to $1,241.60 an ounce, while March palladium futures slid 0.6 percent to $808.10 an ounce.

Source: Bloomberg