NEW YORK/LONDON (Reuters) - Gold rallied to a 10-week high on Friday, capping a week with solid gains, fueled by renewed fund buying, a weakening dollar and as investors sharply increased holdings of bullion held by gold exchange-traded funds (ETF).
Analysts said that gold was poised to retest the psychological $700 level in the near term because of a combination of bullish factors including firm energy prices and improving jewelry demand.
Other precious metals also advanced, with platinum hitting a two-month high, silver rising to its highest level in six weeks and palladium increasing to a two-week high.
Gold rose as high as $686.00 an ounce, the highest since May 9, and was quoted at $682.50/683.30 by 3:09 p.m. EDT (1909 GMT), compared with $677.30/678.10 late in New York on Thursday.
Zachary Oxman, senior trader at Wisdom Financial in Newport Beach, California, said that gold’s fundamentals were improving, citing renewed inflows by funds and a strengthening Indian rupee, which boosts jewelry demand from the top gold consumer, India.
“In the intermediate term, it looks like the market is a little overbought, but today’s rally pushes through that argument and put it more to a long-term trend towards $700,” Oxman said.
Gold has attempted several times to break above the $700 level, and retest the 26-year peak at $730 set in May 2006, but so far has failed this year.
The dollar extended losses across the board as both U.S. Treasury yields and equity markets fell on ongoing worries in the U.S. subprime mortgage sector.
Further weakness in the dollar might lift gold to new highs, but a recovery in the currency might prompt profit-taking and push the metal down toward $640 an ounce, dealers said.
“I am cautious as recent gains have been made purely on a dollar weakness. The price movement is not artificial, but too much dependence on one factor is not healthy,” said Matthew Turner, precious metals analyst at Virtual Metals.
“Gold will be driven by the dollar, but if the currency doesn’t move, then it might come back on profit taking.”
U.S. gold futures have rallied more than $35, or nearly 6 percent, since it closed at $650.60 on July 5.
Bullion’s rise prompted investors to increase holdings in StreetTRACKS Gold Shares GLD.N, the No. 1 gold ETF.
Most recent data showed bullion held by StreetTRACKS XAUEXT-NYS-TT increased to 497.15 tonnes, more than 20 tonnes above 473.45 tonnes reported on July 6.
Changes in gold and silver ETF holdings are closely watched by market participants because sharp inflows in gold ETFs could be a bullish signal as it shows longer-term retail investors are entering the market.
In other precious metals, platinum has been supported by wage negotiations in South Africa, the world’s largest producer.
The world’s biggest platinum producer, Angloplat (AMSJ.J), will hold further wage talks with South Africa’s biggest mining union next week after it did not file a dispute as expected, the company said on Friday.
The development could lead to a wage deal and avert a possible strike in South Africa, the world’s biggest source of platinum group metals.
Meanwhile, U.S.-based Stillwater Mining, the largest producer of platinum metals outside of Russia and South Africa, said it might miss its production goal due to weaker production and the recent labor stoppage at a mine and some processing facilities.
“The price action in platinum is unrelenting and ... the market will likely continue to push higher while there is significant uncertainty around the South African mining situation,” J.P. Morgan Securities said in a daily note.
Platinum hit a high of $1,333 an ounce and was last quoted at $1,330/1,334 an ounce, versus $1,320/1,325 late in New York Thursday, while silver was at $13.27/13.32 an ounce after rising to $13.40, against its previous close of $13.24/13.29 late in the U.S. market. Palladium rose $1 to a two-week high of $370/374.