NEW YORK (Reuters) - Gold jumped nearly 2 percent on Tuesday, its biggest one-day rise since May, resuming its march to record highs as the dollar tumbled and currency market volatility ignited safe-haven buying.
Silver surged 3 percent to a 30-year high and platinum group metals also rallied with the entire commodities complex, after the Bank of Japan said it would pump more funds into the country’s struggling economy and keep interest rates virtually at zero.
Moves by countries around the world toward easier money indicate “not only the amount of liquidity that has been put into the system will remain, but there is a high likelihood of significant level of liquidity being added into the system,” said Frank McGhee, head precious metals trader at Integrated Brokerage Services.
McGhee said expected monetary easing in the United States will result in major devaluation on the dollar, which benefits gold.
Spot gold rose $25.30, or 1.9 percent, to $1,340.50 an ounce at 2:59 p.m. EDT, off an intra-day high of $1,341.20, its seventh record in the past eight sessions. U.S. gold futures for December delivery settled up $23.50 at $1,340.30 an ounce.
The dollar .DXY tumbled to a near nine-month low against a basket of six major currencies, pressured by broad-based demand for the euro.
The usual inverse relationship between gold and dollar has showed signs of strengthening of late. The 25-day correlation between the metal and the U.S. currency has increased to a negative 0.5, the strongest inverse link since May.
Brazil on Monday doubled a tax on foreign investors buying local bonds in an attempt to curb a currency rally that has turned into an issue in the South American country’s presidential race.
On charts, gold’s two-percent rally on Tuesday lifted prices above its upper resistance of a rising channel which started back in July.
But some traders said gold’s upside could be limited. They noted slower physical demand, a third straight outflow of funds from the world’s biggest gold ETF and improved demand for U.S. equities, which rallied 2 percent on Tuesday.
BNP Paribas analyst Anne-Laure Tremblay said the euro may see a correction later this year on deflation risks in the euro zone, and added that stronger risk appetite could favor equities and other assets besides gold.
Integrated Brokerage Services’ McGhee said gold’s sharp rallies are starting to turn parabolic, and that could trigger a price correction.
“It’s almost impossible to pick a level when it will run out of steam. When it does, it will turn around very quickly, because it has nothing to support from a technical standpoint,” McGhee said.
Demand for physical gold retreated as prices rose again. Buying in main gold consumer India was muted as the weaker rupee pressured local buyers.
Holdings of the world’s largest gold-backed exchange-traded fund, New York’s SPDR Gold Trust, declined for a third session, while those of the largest silver ETF, the iShares Silver Trust dipped from record highs.
Silver surged nearly 4 percent to $22.83 an ounce, near its 30-year high at $22.87. Silver continued to outperform gold, with the number of ounces of silver needed to buy an ounce of gold slipping to a one-year low at around 59. (Graphic: link.reuters.com/hun72k)
Platinum, buoyed by strength in gold, hit a 4-1/2 month high at $1,699 an ounce and was trading up 1.6 percent at $1,691.50, while palladium rose 3.2 percent to $575.50.
Reporting by Frank Tang; Editing by David Gregorio and Sofina Mirza-Reid