Gold rises on excessive price meltdown fears

Gold advanced from its lowest in more than nine weeks as the charts that some traders used to predict price moves indicated the metal's recent decline was excessive.

The bullion fell as much as 3.1 per cent to $602.46 an ounce on January 5, the cheapest since October 31. That led its so-called relative strength index to slide to the lowest since October 4, a signal that prices may rebound.

"The collapse on Friday was a little bit too much, it was a little bit oversold in New York,'' Ellison Chu, manager of precious metals at Standard Bank Asia, said by phone from Hong Kong. "So there was some short covering'' after trade in New York ended, he said, referring to buying by traders who had previously sold borrowed metal at higher prices.

Gold for immediate delivery rose as much as $2.10, or 0.4 per cent, to $609.50 an ounce. It traded at $609.13 at 2:22 pm Singapore time.

Gold, as well as other metals such as copper, fell after the dollar rose to a six-week high on January 5 as the US announced higher-than-expected employment figures in December.

The jobs data reduced the chances of US interest rate cut. The fall in gold led its 14-day relevant strength index, a technical indicator that shows if there had been excessive buying or selling, to fall to 35.9. When the index was last lower than this on October 4, gold prices rose 1 per cent the following week.

That gold didn't fall to $600 an ounce, a level considered an important support on charts where buy orders gather, also encouraged buying today, Diana Leong, a trader at Ong First tradition Pte, said by phone from Singapore.

"We are seeing a bit of correction,'' she said. Still, traders and investors are waiting to see if gold will continue to rise or resume its fall and break through $600, said Standard's Chu.

"I will not be surprised if the price dropped below $600,'' he said. ``There's been heavy selling from the funds.''

Hedge-fund managers and other large speculators decreased their net-long position in New York gold futures in the week ended December 26, according to U.S. Commodity Futures Trading Commission data.

Net-long positions fell by 1,801 contracts, or 3 per cent, from a week earlier on the Comex division of the New York Mercantile Exchange. Speculative long positions, or bets prices will rise, outnumbered short positions by 68,092 contracts.

A decline to $600 may lead gold to fall further to $580 an ounce, Chu said.

That level nearly coincides with the 76.4 per cent Fibonacci retracement between gold's 26-year high of $730.40 an ounce reached in May and last year's low of $534.20 posted in March. Currently, gold is near the 61.8 per cent retracement of $609.15.

Gold for delivery next month rose 80 cents, or 0.1 per cent, to $610.10 an ounce on the Comex division in after-hours electronic trading at 12:47 pm Singapore time.

In India, the price of the metal for February declined Rs 6, or 0.1 per cent, to Rs 8,855 per 10 grams, or Rs 27,539 ($620) an ounce, at 10:20 a.m. on the Multi Commodity Exchange in Mumbai.