Wednesday, Aug 13, 2008

By Allen Sykora

Of DOW JONES NEWSWIRES

Gold and the rest of the New York precious-metals complex closed sharply higher Wednesday, bouncing from a technically oversold condition and also getting help from the surge in crude oil and ongoing tensions between Georgia and Russia, analysts said.

December gold rose $16.90 to settle at $831.50 an ounce on the Comex division of the New York Mercantile Exchange. September silver gained 36 cents to $14.845.

The bounce comes one day after gold hit the $808.60 level that was its weakest since November and September silver touched the $14.01 level that was its weakest since October.

"We held yesterday's low," said Dave Meger, senior metals analyst with Alaron Trading. "We really were in a significantly oversold condition technically yesterday. So you're seeing a technical bounce, along with some short covering."

The Relative Strength Index for gold fell to around 12 on Tuesday on a scale of 1 to 100, and 30 is considered oversold.

Steady buying occurred from the opens in Europe and later in New York, said George Gero, vice president with RBC Capital Markets Global Futures. This "started as bargain hunting and picked up steam with good follow-through for all the usual reasons, as geopolitical fears, financial fears and (an) energy rally dominate traders' thoughts," he continued.

Several observers cited the military conflict between Russia and Georgia as a factor further supporting the metals, particularly amid reports of Russian advances despite a cease-fire.

Meanwhile, shortly before gold's close, September crude oil was $4.03 a barrel higher at $117.04 a barrel, boosted by weekly drawdowns in U.S. energy inventory data.

And, said Meger, the dollar backed down to a "neutral" area toward the end of the day. The euro recovered to $1.4911 from an earlier low of $1.4844.

David Morgan, independent precious-metals analyst with Silver-Investor.com, and Gero also cited weakness in equities as a supportive influence for gold. The Dow industrials were down by around 120 points just after the gold close but had been even weaker.

"What we're witnessing now is what we often see in a long term trend - the general equity market is going down as the precious metals are going up," Morgan said.

"I can't make a big case out of one day's trading," he continued. "But it starts on a certain day, and this may be the day."

He pointed out that the Toronto Stock Exchange in recent months has held up better than other global stock bourses.

"The professionals are seeing that, and therefore the professionals are coming back into this (metals) sector," he said.

The analyst suggested the metals may be bottoming and gold could return to $950 and silver to $19 by the end of the year.

For the near term, Meger put initial resistance for December gold around the $835 region that gold poked above only temporarily, with stronger resistance in the $855 to $860 area. He listed support around $808.

In September silver, Meger pegged support around $14.30 and $14, with resistance initially in the $14.90 to $15 area, then $15.20 to $15.25.

Meanwhile, October platinum rose $37.70 to $1,516.50 an ounce, while September palladium gained $5.80 to $316.35 an ounce.

"You're seeing a snapback on the back of oil," said one trader, citing a weekly draw reported in U.S. inventories of crude, gasoline and distillates. "Shortly after that, you saw a spike in gold."

And the platinum group metals followed in light volume, he continued.

"I'm sure a lot of it has to do with end users coming in and scooping up metal (after recent weakness) and bargain hunting," he said. 


 
 
Settlements (includes open-outcry and electronic trading): 
London PM Gold Fix: $818.50 versus $817.75 on Tuesday 
Spot gold at 1:30 p.m. ET: $825.90, up $14.25 from previous day; Range: $805.60-$829.70 
December gold (GCZ08) $831.50, up $16.90; Range $811.50-$836.40 
September silver (SIU08) $14.845, up 36 cents; Range $14.35-$14.93 
October platinum (PLV08) $1,516.50, up $37.70; Range $1,480-$1,529 
September palladium (PAU08) $316.35, up $5.80; Range $304.20-$318.75

-By Allen Sykora, Dow Jones Newswires; 541-318-8765; allen.sykora@dowjones.com

(END) Dow Jones Newswires

13-08-08 1813GMT