PRECIOUS-Gold posts biggest gain in 3 months as U.S. equities slide

Thu Jan 23, 2014 2:48pm EST

* Data shows contraction in Chinese manufacturing sector
    * Gold may face technical resistance in short term
    * GFMS sees average gold price falling for 2nd year in 2014
    * Coming up: CFTC Commitments of Traders report Friday

 (New throughout, updates prices and market activity)
    By Frank Tang and Jan Harvey
    NEW YORK/LONDON, Jan 23 (Reuters) - Gold surged more than 2
percent on Thursday, notching its biggest one-day rally in three
months, as sharp losses in U.S. equities and disappointing
Chinese manufacturing data lifted  bullion's safe-haven appeal.
    Gains in the metal's price accelerated after it broke above
key technical resistance at $1,260 an ounce, a level where it
had repeatedly failed. The U.S. dollar's tumble following a
strong manufacturing report in the euro zone also lifted gold
prices to the highest level in nearly two months. 
    Bullion investor sentiment received a boost after
manufacturing data in China showed that a mild slowdown at the
end of 2013 in the world's second-largest economy had continued
into the new year. The news sent the Standard & Poor's 500 index
 down more than 1 percent.  
    "Market participants were ready to sell their equities
holdings and to add to their gold positions on the
weaker-than-expected Chinese data," said Carlos Sanchez, a
portfolio manager and director of commodities and asset
management at CPM Group in New York.
    So far this year, gold has benefited as investors took
profits from the stellar 30-percent gain in the U.S. equities
market in 2014, when bullion tumbled 28 percent for its biggest
annual loss in 32 years.
    Spot gold was up 2.3 percent at $1,264.20 an ounce by
2:03 p.m. EST (1903 GMT). Earlier it hit $1,265.40, within reach
of a two-month high of $1,267.26 set in early December.
    U.S. gold futures for February delivery settled up
$23.70 an ounce at $1,262.30.
    COMEX trading volume was around 235,000 lots, set to be the
highest turnover in nearly two months and about 25 percent above
its 250-day average, preliminary Reuters data showed.
    Lower short-term U.S. interest rates, reflected by a sharp
drop of U.S. Treasury yields, also boosted gold buying, said
Sanchez. 
    On charts, gold appears to form a bullish double-bottom
pattern connecting the lows of June and December at prices below
$1,200 an ounce.
    In the short term, technical selling could pressure gold, as
bullion was near a long-term downward trendline and its 100-day
average at $1,277 an ounce, analysts said. 
    Adam Sarhan, chief executive officer of New York-based
Sarhan Capital, said gold's double-bottom pattern will be
confirmed if the price rises above $1,433 an ounce, the peak at
the middle of the bullish formation.
    
    INDIA MULLS IMPORT RESTRICTIONS
    Bullion prices were also underpinned after the leader of
India's ruling Congress party, Sonia Gandhi, asked the
government to review tough import restrictions on gold, which
include a record 10 percent import duty, a television channel
said on Thursday. 
    In research news, metals consultancy Thomson Reuters GFMS
said in a report that improving global economic health meant
gold would not significantly rebound anytime soon, with prices
expected to fall another 13 percent after 2013's crash caught
out investors. 
    Among other precious metals, silver rose 1.6 percent,
in line with gold's rally, to $20.04 an ounce. Platinum 
was up 0.2 percent to $1,455.49 per ounce, while palladium fell
0.2 percent to $741.97 per ounce. 
 2:03 PM EST     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold FEB   1262.30  23.70   1.9  1230.80 1267.00  188,726
 US Silver MAR  20.010  0.171   0.9   19.645  20.310   46,680
 US Plat APR   1463.20   0.80   0.1  1442.20 1470.70   11,340
 US Pall MAR    745.90  -2.95  -0.4   742.00  748.75    3,850
                                                              
 Gold          1264.20  28.14   2.3  1231.90 1265.40         
 Silver         20.040  0.310   1.6   19.680  20.290
 Platinum      1455.49   3.24   0.2  1444.75 1467.25
 Palladium      741.97  -1.78  -0.2   745.00  746.00
                                                              
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        235,990   129,807   187,308     16.59   -0.01
 US Silver       50,869    37,533    57,298     24.78   -1.07
 US Platinum     11,393    10,987    12,687     14.67   -0.56
 US Palladium     3,985     2,966     5,854     17.08    0.47
                                                              
 
 (Additional reporting by Veronica Brown in London; Editing by
Jane Baird, David Evans and Lisa Von Ahn)
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