Gold set for strongest rise since mid-Dec, silver rose 2.8 percent to $28.59 an ounce

Gold rallied on Tuesday, boosted by a rise in the euro against the dollar after the price hit its lowest in nearly six months last week in a flurry of year-end speculative selling.

Mounting tensions between Iran and the United States over a possible disruption to oil supply boosted crude oil futures but did little to elicit any safe-haven buying of gold, which remains tightly tethered to the ebb and flow of the euro.

Gold’s correlation with the euro/dollar exchange rate is at its most positive in nearly two years, meaning the bullion price is more likely to move in lockstep with the euro than at any other time since January 2010.

German Bund futures slipped but the debt crisis was expected to limit falls as refinancing pressure grows on the bloc’s lower-rated sovereigns, while the euro edged higher after better-than-expected Chinese data boosted riskier assets.

Speculators placed their heaviest bets ever against the single European currency last week, in light of the lack of a lasting solution to the euro zonedebt crisis and the knock-on effect on the regional economy.

Spot gold was last up 1.5 percent at $1,588.80 an ounce by 1043 GMT, set for its largest one-day rise since mid-December.

“Gold didn’t really react to the safe-haven issue in Iran that much. Oil has, obviously, but you haven’t really seen that safe-haven, geopolitical risk investor come in at all really so far,” RBS commodities analyst Nikos Kavalis said.

“I would say it all really depends on the euro for the time being. This is really where gold takes its cue from.”

Military exercises in the Mideast Gulf by Iran and the movement of U.S. naval vessels in the area have raised fears of a confrontation between Tehran and Washington that could cut off oil exports from the region.

Iran has said it could shut the Strait of Hormuz, through which 40 percent of world oil is shipped, if sanctions were to be imposed on its crude exports.

EURO FOCUS

Meanwhile, in Europe, France’s Nicolas Sarkozy will meet German Chancellor Angela Merkel in Berlin on Jan. 9 for talks that are likely to centre on new rules to enforce budget discipline across the European Union.

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Posted by admin on Jan 3 2012. Filed under Gold price. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry