Gold surges more than 3%
New York (Dec 9) Gold futures have surged to their highest level in more than six weeks as losses in US stocks and the greenback stir up investor appetite for safe-haven assets.
Gold for February delivery, the most actively traded contract, on Tuesday rose $US37.10, or 3.1 per cent, to $US1,232 a troy ounce on the Comex division of the New York Mercantile Exchange. It was the highest settlement since October 22.
The gains came as stock markets around the world sold off after China's securities clearing house late Monday banned investors from using low-grade corporate bonds as collateral for short-term financing. The move is part of Beijing's push to reduce financial risks and buttress long-term economic growth.
"The shock that came out of China needed to be digested by the market," Frank McGhee, a senior precious-metals broker with Integrated Brokerage Services in Chicago, said. Mr McGhee said many investors sought the safety of gold in response to the news.
Some traders believe gold will keep its value better than stocks during turbulent periods because the precious metal isn't reliant on economic growth to drive performance.
"Stocks are heading lower, and people are looking at gold as a cheaper haven asset than what they can get in the bond market," Adam Klopfenstein, a senior market strategist with Archer Financial Services, said.
Gold is down 38 per cent from a record high touched in August 2011, while the price of Treasury bonds, an alternative haven asset, remain near their historical highs. As a result, gold is currently a more attractive investment, Klopfenstein said.
Automatic stop-loss orders also spurred the market's momentum. While many investors profited from gold prices pulling lower in recent months, some of those bearish traders had placed automatic purchasing orders to protect themselves if the market turned higher.
Now that it has, these electronic buy orders -- clustered around $US1,210, $US1,215, $US1,220 and $US1,225 an ounce -- have helped gold prices surge past those levels, according to George Gero, a senior vice president with RBC Capital Markets Global Futures.
As gold prices continue to gain ground, "we're looking at a possible close of $US1,250 or better," Mr Gero said.
A weaker US dollar, which retreated against a basket of international currencies, also lent gold prices some support. As the US currency weakens, dollar-denominated gold futures become less expensive for investors using other currencies, spurring their purchases.
The ICE Dollar Index was recently down 0.7 per cent at 88.385.