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Gold climbs as euro woes and Korea revive safe-haven bid
November 23, 2010 / 3:55 AM / 7 years ago

Gold climbs as euro woes and Korea revive safe-haven bid

<p>A 999.9 fine gold 100 troy ounce Engelhard gold bar is seen on the floor of the New York Stock Exchange in New York, November 9, 2010. REUTERS/Shannon Stapleton</p>

NEW YORK (Reuters) - Gold rose to a seven-session high on Tuesday, as tensions on the Korean peninsula and mounting worries over a European debt crisis prompted investors to buy both the metal and the U.S. dollar as safe havens.

Gold traded lower through much of the European day on selling pressure related to expiring options at the $1,370 strike. But bullion broke higher as traders saw heightened risks in both Europe and the Koreas, with some players appearing to target the $1,400 mark.

“Gold’s up on sovereign risk issues, worries over Ireland, and also the Korean incident, which prompted investors to buy gold and the dollar simultaneously, and that’s why the U.S. bond yields are falling,” said James Steel, chief commodity analyst at HSBC.

U.S. gold futures rose 1.5 percent to settle at $1,377.60, with trading volume a third higher than average. Spot gold rose 0.7 percent to $1,375.49 at 2:50 p.m. EST (1950 GMT)

One European bank trader reported heavy options trade at strike prices around $1,370, indicating plenty of selling in the market around those levels. The trader said selling pressure disappeared after option expiry.

With risk aversion running high, the typical inverse correlation to the dollar collapsed, with the one-day average hourly gold/dollar correlation turning positive for the first time since September, data showed.

The dollar jumped by more than 1 percent against a basket of major currencies .DXY as the euro slumped on fears that Ireland’s debt crisis could spread to other members of the euro zone such as Portugal and Spain and amid signs the Irish government may have trouble passing an austerity budget.

German Chancellor Angela Merkel said the crisis in Ireland was different from the one in Greece but just as worrying and the euro was in an “exceptionally serious” situation.

“This is the new leg of the bull market. Everybody knew what’s going on in Ireland, the next shoe to drop is going to be Portugal and Spain,” COMEX gold option floor trader Jonathan Jossen.

The safe-haven bid also boosted U.S. Treasury debt prices, which move inversely with yields. <US/> <FRX/>

Spot silver fell 1.2 percent to $27.48 an ounce amid unusually active futures trading, helped by strong buying in silver exchange traded funds. COMEX silver futures volume was near 135,000 lots, one of the most-active days on record.

The rally in silver, up 64 percent this year versus gold’s 26 percent gain, has narrowed the gold-to-silver ratio to less than 50, its lowest level since March 2008 and a point at which more analysts were beginning to call silver overvalued.

FED CONSIDERED MORE DRASTIC STIMULUS

Until this week, strength in the U.S. dollar amid doubt about the Federal Reserve’s bond buyback program has pressured gold.

Minutes of a meeting released on Tuesday showed that a resolute but fractured Fed had considered even more-drastic options to stimulate the economy before it settled on buying $600 billion in U.S. government bonds.

The traditional inverse relationship between gold and the dollar has weakened as it did in May, when Greece asked for financial aid and bullion’s relation to the dollar turned strongly positive as investors shed holdings of euros.

A common gauge for risk, the CBOE Volatility Index .VIX jumped 15 percent as rising tensions in the Korean peninsula added to worries about global economic conditions.

Platinum fell by 0.4 percent to $1,654.24 an ounce, while palladium was down by 1 percent at $684.22.

Additional reporting by Amanda Cooper and Elizabeth Fullerton in London; Editing by David Gregorio

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