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Gold hits five-week high as dollar slips, commods rise
Jan Harvey
LONDON
Mon Jan 11, 2010 9:57am EST

LONDON (Reuters) - Gold prices rose 2 percent in Europe on Monday to a five-week high of $1,161.50, benefiting from weakness in the dollar as traders bet on U.S. interest rates staying low in the immediate future.

Spot gold was bid at $1,154.35 an ounce at 1425 GMT (9:25 a.m. EST), against $1,137.90 late in New York on Friday. U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange rose $16.50 to $1,155.40 an ounce.

The metal is building on gains made in the first trading week of the new year, when prices climbed nearly 4 percent.

"The technical situation for gold improved last week," Peter Fertig, a consultant at Quantitative Commodity Research, said. "In addition of course, the U.S. dollar has given back some of the gains it made at the end of last year."

"All in all I see further upside potential for gold. I still expect during the first few months of the year we will hit new record highs."

Gold hit a record high $1,226.10 an ounce in December.

The U.S. dollar fell on Monday after disappointing U.S. jobs data on Friday and comments from a Federal Reserve official that U.S. interest rates are likely to stay low for some time.

Weakness in the U.S. unit boosts gold's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.

Other commodities rose on the back of the dollar's decline, with oil jumping more than 1 percent and base metals also climbing. Industrial commodities are benefiting from stronger-than-expected Chinese import data.

Growth in China's imports and exports last month beat expectations, providing fresh evidence of economic recovery. One analyst said the trade data suggested December industrial output grew by more than 25 percent year-on-year.

"With the Chinese data out, people are expecting a faster recovery in global growth, which could see some gold buying for those who believe it is an inflation hedge," said Walter de Wet, an analyst at Standard Bank.

OUTFLOW

In New York, the world's largest gold-backed exchange-traded fund reported a near four-tonne outflow on Friday.

Its holdings slipped just over 14 tonnes or 1 percent in the first trading week of the new year, compared with a rise of more than 7 tonnes in the same period of 2009.

Deutsche Bank said in a research note it expects inflows into precious metals exchange-traded products (ETP) to slacken this year as investors divert attention to more volatile commodities.

"We don't expect extreme outflows from precious metals ETPs," it said. "However, growth rates are likely to be slower than 2009."

Among other precious metals, silver tracked gold higher to $18.73 an ounce against $18.44. Platinum hit a 16-month high of $1,590.50 and was later at $1,586.50 against $1,574.50, while palladium was at $425 against $425.50.

Both platinum and palladium have benefited from the launch of the first U.S.-based ETPs backed by the metals on Friday.

"We think platinum is poised to substantially benefit from increased investment demand given its already favorable fundamental outlook," Morgan Stanley said in a note.

Platinum group metals traders will be closely eyeing news on global car sales for clues on future demand for the autocatalyst materials.

Industry figures released on Monday showed China's auto sales surged past the United States to reach record levels in 2009, underscoring China's importance to the global auto industry as the world's biggest market.

http://www.reuters.com/article/idUSTRE5B10OV20100111