Gold price extends gains on rebound from near six-year lows

London (Nov 20)  Gold gained on Friday, extending the previous day's rally, as expectations that the Federal Reserve will take its time over raising interest rates prompted a wave of short covering after prices hit near six-year lows.

The market had become overextended on the downside after falling to its lowest since February 2010 at $1,064.95 an ounce on Thursday, analysts said. A suggestion in the minutes of the Federal Reserve's last meeting that the bank would move cautiously on rates prompted the short covering.
 
Spot gold was up 0.1 percent at $1,083.48 an ounce at 1235 GMT, while U.S. gold futures for December delivery were up $5.00 an ounce at $1,082.90. The metal is set to end the week little changed after prices jumped 1.1 percent on Thursday.

"We are still unclear how much of a rate hike there will be by the Fed, but given all the comments which we had from the FOMC minutes, one element is clear -- it is not going to be very aggressive," Ava Trade market analyst Naeem Aslam said.

"Hence we have seen the massive selling pressure getting squeezed out."
 
Speculation that the Federal Reserve will lift interest rates for the first time in nearly a decade this year has intensified since the release of strong U.S. jobs data earlier this month, which triggered a sharp drop in gold prices.

Higher rates tend to weigh on gold, as they lift the opportunity cost of holding non-yielding assets, while boosting the dollar.
 
The Fed has telegraphed its imminent rate move so well that central bankers elsewhere have even begun to get impatient about it, its second-in-command suggested on Thursday.

Once this wave of short covering has run its course, that is likely to keep up pressure on gold, which has fallen 5 percent this month and is down 8.5 percent so far this year.

"We still remain in thrall to the Fed," Marex Spectron said in a note on Friday. "Although a lot of the possible December rate rise is factored in, the markets will still react to speeches and figures."

Chinese banks are growing alarmed by a rising number of defaults among jewellery manufacturers, prompting them to review new gold lending more carefully, according to sources with direct knowledge of the issue.

Among other precious metals, silver was up 0.4 percent at $14.28 an ounce, platinum was up 1.2 percent at $863.50 an ounce, and palladium was up 2.1 percent at $548 an ounce.

Source: Reuters