Gold hits 11-month high after ECB; $1,800 in sight

NEW YORK Thu Oct 4, 2012 3:08pm EDT

Gold bars are displayed at a gold jewellery shop in the northern Indian city of Chandigarh April 11, 2012. REUTERS/Ajay Verma

Gold bars are displayed at a gold jewellery shop in the northern Indian city of Chandigarh April 11, 2012.

Credit: Reuters/Ajay Verma

NEW YORK (Reuters) - Gold rose to its highest price in 11 months on Thursday, with the market's sights set firmly on $1,800 an ounce, as the inflation-hedge appeal of bullion was bolstered by signs the European Central Bank intends to keep borrowing costs low.

Platinum group metals rallied as labor unrest in South Africa's platinum mines showed little sign of abating, which could reduce output.

ECB President Mario Draghi said everything was in place for the bank to buy the bonds of troubled euro zone countries such as Spain and that conditions linked to such purchases need not be punitive. The ECB also kept its main refinancing rate steady at 0.75 percent, a record low, to stimulate economic growth.

"Draghi's going to make sure that the market doesn't fall apart. For gold, that's a positive because the move is reducing the risk of something really bad happening" with the use of economic stimulus to keep bond yields low, said Axel Merk, chief investment officer of Merk Funds with $600 million in assets.

Draghi's stimulus-friendly comments fueled gains in equities and commodities, led by a near 4 percent rebound in Brent crude futures. Gold was also underpinned as the dollar fell almost 1 percent against the euro.

Some analysts were surprised by gold's rally ahead of Friday's all-important September U.S. nonfarm payrolls data. The report is keenly watched for clues on how long the U.S. central bank will continue adding $40 billion a month to the system through purchases of mortgage-backed securities.

Spot gold rose 0.7 percent to $1,789.70 an ounce by 2:21 p.m. EDT (1821 GMT), having earlier hit a high of $1,794.90, the loftiest level since mid-November 2011.

U.S. COMEX December gold futures settled up $16.70 at $1,796.50 an ounce, with trading volume largely in line with its 30-day average, preliminary Reuters data showed.

Spot silver rose 1 percent to $34.91 an ounce.

Gold was also underpinned by data showing the number of Americans filing new claims for unemployment benefits rose only slightly last week, suggesting a mild improvement in the labor market.

US PRESIDENTIAL RACE, PAYROLLS

Some attributed Thursday's broad market rally to the notion that U.S. Republican presidential nominee Mitt Romney has put his campaign on a more positive footing following an aggressive debate performance against President Barack Obama Wednesday night.

Despite Thursday's rally, some traders may stay out of the market ahead of the U.S. employment report on Friday.

Analysts said Wednesday's encouraging private employment data was not enough to alter the view that the Fed will keep interest rates low until it sees signs of substantial economic progress.

Spot platinum was up 1.9 percent at $1,712.99 an ounce in an eighth straight session of gains, supported by news South African police fired tear gas at striking miners near the Rustenburg operations of the world's top platinum producer, Anglo American Platinum.

South Africa holds around 80 percent of the world's platinum reserves.

Palladium climbed 3.4 percent to $670.75 an ounce on platinum's coattails.

(Additional reporting by Clare Hutchison and Veronica Brown in London and Rujun Shen in Singapore; Editing by Alden Bentley)

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