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Gold Lifted By Short Covering, Softer Dollar, Improved Physical Demand

By Allen Sykora of Kitco News
Friday December 20, 2013 11:30 AM

(Kitco News) -U.S. gold futures bounced Friday on short covering helped by a weaker U.S. dollar, as well as a pickup in physical demand after recent price weakness, traders said.

As of 11:15 a.m. EST, gold for February delivery was $10.70, or 0.9%, higher to $1,204.30 per ounce on the Comex division of the New York Mercantile Exchange. March silver was up 24.4 cents, or 1.3%, to $19.43 an ounce.

Gold was on the defensive Thursday, falling to its lowest levels since June after the Federal Open Market Committee Wednesday announced the start of tapering of its program of quantitative easing. But the gold market held overnight slightly above the low from Thursday and has now reclaimed $1,200 an ounce.

Dollar strength previously contributed to the declines in gold, but the euro is now recovering, trading at $1.36735, up from $1.36609 late Thursday and a low of $1.36253 earlier Friday.

“We’ve seen the dollar fall back today. That’s caused a bit of short covering,” said Dave Meger, director of metals trading with Vision Financial Markets.

Short covering is when traders buy to offset or exit from short positions in which they previously sold on a bet for still-lower prices. The covering was helped along when the market was holding above $1,190, Meger added. This is just above the prior-day and overnight low.

“The other thing is the amount of physical buying we have seen on recent dips has really picked up, particularly from China and overseas,” Meger said.

George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures, cited bargain hunting on the price pullback in addition to short covering to even out positions ahead of the weekend. Some indexing and re-balancing of positions is likely also occurring, he added.

February gold dipped to $1,186 Thursday, taking out the contract below its June low of $1,187.90. However, the more significant technical-chart support level traders have been citing is the area around $1,180. The June low for spot metal was $1,180.20, according to one price vendor. The low on a futures continuation chart was $1,179.40.

By Allen Sykora of Kitco News; asykora@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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