Gold, Silver Rally as Dollar Tumbles to Record Low Against Euro
By Choy Leng Yeong
July 24 (Bloomberg) -- Gold rose to an 11-week high in New York as the dollar tumbled to a record low against the euro, boosting the appeal of the precious metal as an alternative investment. Silver also gained.
The dollar fell to a record $1.3852 against the euro and a 26-year low against the pound today on speculation subprime mortgage losses will deepen and reduce demand for U.S. assets. Before today, gold had gained 6.8 percent this year as the dollar slumped 4.4 percent against the euro.
``We're definitely set up now to take a run at the $700 level'' for gold, said Frank McGhee, head trader at brokerage Alliance Financial LLC in Chicago. Gold is benefiting from ``nervousness'' about subprime mortgage losses.
Gold futures for August delivery rose $3.50, or 0.5 percent, to $685 an ounce at 11:12 a.m. on the Comex division of the New York Mercantile Exchange. The metal earlier reached $688.40, the highest since May 9.
Silver futures for September delivery rose 8 cents, or 0.6 percent, to $13.41 an ounce. The metal earlier reached $13.59, the highest since June 7.
``Both of these markets are starting to look very strong with another leg up'' as the euro makes record highs against the dollar, McGhee said.
Gold denominated in euros has risen 2.3 percent since July 17 to 495.10 euros an ounce after falling 7.6 percent since Feb. 26.
Hedge-fund managers and other large speculators increased their net-long position in gold for a third straight week, according to U.S. Commodity Futures Trading Commission data.
Long Positions
Speculative long positions, or bets prices will rise, outnumbered short positions by 79,719 contracts for the week through July 17, up 10 percent from the previous week, the Washington-based commission said in its Commitments of Traders report.
``Gold has moved higher in euro-terms, and this indicates that some speculative buying has occurred,'' John Reade, an analyst at UBS AG in London, said today in a report. ``This, combined with still-modest long positions, points to potential further strength in gold should investors choose to add positions.''
The dollar has fallen 2.7 percent in the past month, the biggest monthly decline since the month through Nov. 24. Its decline accelerated today after Countrywide Financial Corp., the biggest U.S. mortgage lender, reported its third straight decline in quarterly profit as late loan payments increased. At least 35 bond and loan deals worldwide have been pulled, delayed or restructured in the past five weeks, according to Bloomberg data.
Risk Appetite
The credit and foreign exchange markets are showing a reduced appetite for risk, Reade said.
``Any signs of widening of market concerns could hit pro- growth commodities such as base metals and platinum-group metals,'' Reade said. ``Gold and silver look to be safer bets due to the weaker U.S. dollar and modest long positions.''
Copper, trading at $3.6685 a pound on the Comex, has gained 28 percent this year as worldwide demand outpaced mine output. A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.
To contact the reporter on this story: Choy Leng Yeong in Seattle at clyeong@bloomberg.net .
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