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Comex gold reverses to firmer close, eyes UK sale

NEW YORK: Gold futures ended slightly higher on short covering and caution over strong oil prices, as traders sought neutral positions before Britain's 25-tonne gold auction next week, dealers said.

In addition to the rise in US crude to a new 9-year high, news Wednesday that South African gold producer Randfontein Estates had unwound most of its hedge book added support and helped explain Tuesday's near $5 gold rally.

"If you get a buyer in this market obviously you are going to push it higher," said George Parrill, a director at ScotiaMocatta. "That and you see open interest in Comex is also dropping so there is some short covering."

Down for most of the session, Comex February gold reversed in the afternoon, settling up 70 cents at $290.30 an ounce. It moved off a low of $287.50 to a peak of $291.00. Spot bullion was quoted late at $289.15/75, compared to London's late fix at $287.65 and Tuesday's New York close at $288.35/95.

Randfontein, subject of a takeover offer by nonhedger Harmony Gold Co, said it had reduced the amount of gold committed to foward sales and call options by 55 percent to 1.2 million ounces.

OPEC supply tightness and a vicious US cold weather snap propelled oil prices to their highest since January 1991, during the Gulf War. US light crude neared $30 a barrel.

Financial markets have grown increasingly nervous about inflation and that the Federal Reserve will move US interest rates higher at its next policy setting meeting Feb 1-2, to prevent the economy from overheating.

"The dollar and stock market are down a little bit but not down enough to galvinize the precious metals," said James Steel, analyst at Refco Inc. The Dow Jones industrial stock average was off 75 points in late trade and the dollar was at 105.31/39 yen, off its US open at 105.80/85 yen.

Meanwhile, few dealers wanted to extend themselves before the January 25 UK gold sale, the fourth under a planned reduction of reserves to 300 tonnes from 715 tonnes.

Gold prices tumbled to 20-year lows in the wake of the first sale in July, then began their stunning spike over the $300 level after the better-received late September offering.

But bullion has failed to reclaim the $300 an ounce level in the two months since the November sale brought disappointing results.

March silver ended up 0.8 cents at $5.173 an ounce, touching $5.14 and $5.19. Spot bullion fetched $5.14/17 in late trade, up from the fix at $5.1025 and the previous close at $5.11/14.

Nymex March palladium rose $4.05 to $442.75 an ounce and April platinum rose $12.50 to $428.20.

"I think this is a spread trade and market has evaluated palladium as being at least overbought compared to platinum, not necessarily overbought itself," said Steel. -Reuters