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Comex gold ends down as palladium marches on

NEW YORK: Gold fell in light activity Monday, recovering from last week's hectic action but still focused on developments from the mining sector, especially news on Ghana's troubled Ashanti Goldfields Ltd, dealers said.

Meanwhile, palladium shot to a new high as supply remained scarce.

Comex April gold settled at $311 an ounce, down $2.60, after trading $308.30 to $313.60. Spot bullion was quoted late at $307.30/9.30 against the London afternoon fix at $308.35 and Friday's New York close at $310.20/2.20.

Dealers said market choppiness could continue in advance of a Feb 17 margin call deadline for Ashanti, which last week lost a court battle with angry shareholders seeking new management over losses incurred in gold's spike last year.

"The market is generally still waiting for the Ashanti outcome," said Ian MacDonald, bullion trade manager at Commerzbank. "So that's why I think we're trading in a sideways range right now."

Ashanti ditched it chief financial officer, Mark Keatley on Monday. It faced losses of up to $570 million on its hedge book when gold soared in September, after 15 European central banks pleged to limit gold sales and lending for five years.

The company won a series of reprieves on payments to its derivatives counterparties, the fourth of which expires Thursday. It is unclear how much of Ashanti's painful short position remains to be bought back in the cash market.

Last week's gyrations and revived bullishness erupted after several major producers pledged reduced hedge sale positions.

Implied options volatility, a measure of market thinking on future price swings, has been subsiding as underlying bullion prices retreated from the four-month highs early in the move.

One-month volatility was quoted bid at 28 percent late Monday, down about 10 percentage points from Friday.

Futures prices skyrocketed $37 to a four-month high of $326.90 last Monday. They then bounced around mostly above $300, ending the week up only 60 cents. Spot bullion traded wildly between $319 and $295 during the same period.

"Gold was actually cited to be increasing for 'fundamental reasons' and when it retrenched some gains late in the week it was due to 'profit-taking,'" wrote CIBC World Markets in an Equity Research note on Monday.

"This bullish nomenclature has been absent from gold for many years. In recent price history, price increases were merely short covering, thus unsustainable, and declines were always thought to be due to producer and central bank selling," the firm said.

The growing confidence of gold bulls was illustrated by biweekly CFTC data released late Friday on large trader positions at the Comex.

The CFTC Commitments of Traders report as of Feb 8 showed the net speculative gold futures position had switched from a small short to a long of 9,014 100-ounce contracts, about 28 tonnes.

March silver fell 8.0 cents to $5.27 an ounce, touching $5.355 and $5.26. Spot silver last fetched $5.21/24, compared to the fix at $5.235 and the previous close at $5.27/30.

Meanwhile, palladium was fixed at a new high of $607 an ounce in London's afternoon, up $7 from the morning fix, propelled by the widely-chronicled market imbalance, where auto catalytic converter makers chase a limited supply from top-producer Russia.

"The story there obviously continues to be Russia," said Vanessa Motto, analyst at CPM Group.

Nymex March palladium rose $6.65 to $605.50 an ounce. April platinum fell $9.20 to $517.20 an ounce. -Reuters