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Comex gold ends stronger on bank buying, oil rally

NEW YORK: Gold futures jumped to 2-1/2-week highs on Tuesday, snapped out of their doldrums by dealer buying despite news Dutch sales and the specter of Britain's fourth gold auction in one week, traders said.

Crude oil prices surged to their highest since the Gulf War, giving gold a slight inflation-scare premium upon the market reopen after Monday's Martin Luther King, Jr., holiday, experts said.

A cast of two or three large New York bullion dealers were featured buyers, accelerating the rise in afternoon business. Traders speculated they may have been gunning for an even bigger advance past $290 an ounce that failed to unfold.

Comex February gold ended up $4.70 at $289.60 an ounce, touching $285.90 and $289.80, its highest print since Dec 30. Spot bullion was quoted late at $288.35/8.95, up from London's late fix at $285.80 and Friday's New York close at $283.65/4.25.

"Gold has seen a lot of trade buying," said one futures broker. "I think they are trying to force funds into covering shorts but are having trouble finding where the major buy stops are."

Robust physical demand and options-related buying supported the market overnight, dealers said.

The market actually rose subsequent to morning news that the Dutch central bank had sold around 11 tonnes of gold last week as part of its five-year programme to sell 300 tonnes of its reserves, in line with a 2000-tonne five-year European central bank sales cap announced Sept 26.

Including the latest sale, the Dutch central bank has sold 41 tonnes since unveiling its planned disposals on Dec 6.

The market is focusing on Britain's Jan 25 sale of 25-tonnes under its intended reduction of reserves to 300 tonnes from 715 tonnes.

"I think gold will take direction from next week's UK auction," said David Rinehimer, director of commodities research at Salomon Smith Barney. "The fundamentals haven't changed dramatically. The energy markets could be having some supportive influence."

Nymex oil futures stormed to nine-year highs today, propelled by a severe cold snap in the US and concern that Opec exporters will maintain restraints on production.

Gold has historically been viewed as an investment that maintains its value during inflationary periods. Until recently, the desire for such a hedge was diminished by several years of quiescent price pressures.

March silver closed 1.5 cents higher at $5.165 an ounce after trading $5.125 to $5.19. Spot silver closed at $5.11/14, compared to $5.13 at the fix and the previous close at $5.10/13.

Nymex March palladium fell $2.30 to $438.70 an ounce and April platinum rose $5.30 to $415.70 an ounce. -Reuters