NEW YORK – Gold climbed to its highest in three weeks and silver rose toward a 30-year high on Wednesday, as thin volume and a weaker dollar drove bullion to within $US20 of its record.
Gold buying accelerated as the dollar hit a seven-week low against the yen and fell versus the euro. US bond yields tumbled following a solid debt auction, diminishing the appeal of the greenback.
"Volume is light and somebody's making a decision on whether to own some gold or to cover some short positions at the end of the year. It can change in any given time during the day," said George Nickas at futures broker FC Stone.
Precious metals extended gains from the previous session, when bullion jumped over 1.5 per cent on doubts over US economic recovery.
After several weeks of trendless trade, gold staged its biggest two-day gain since Dec. 6 as many investors bet that economic uncertainty and currency diversity would fuel more demand from investors and banks. Prices are on track to rise 28 per cent this year, a record 10th consecutive annual gain.
Analysts said that Tuesday's dismal US economic data with an unexpected deterioration in US consumer confidence and a sharp fall in US single-family home sales suggested the Federal Reserve will maintain an accommodative monetary policy in 2011.
Spot gold rose 0.4 per cent to $US1,410.69 an ounce at 2:39 p.m. EST (1939 GMT), after setting a three-week high of $US1,413.95. US gold futures for February delivery settled up $US7.90 an ounce at $US1,413.50.
COMEX gold volume was less than 70,000 lots, about two-thirds lighter than the average for the past 30 days but in line with lower turnover for most of the commodity complex between the Christmas and New Year holidays, preliminary Reuters data showed.
Silver led the rally again as it has for the past few months, setting a three-week high of $US30.66 an ounce.
Spot silver rose 1 per cent to $US30.56, driven by a broad push higher across the commodities complex with copper at record highs and crude oil steadying above $US91 a barrel.
The gold-silver ratio, used to measure how many ounces of silver is used to buy an ounce of gold, slumped to a four-year low of 46.1, extending its steady decline since August. It has averaged about 63 over the past year, and dropped below 45 only twice in the past 25 years.
Silver is one of the best-performing commodities so far this year, gaining over 80 per cent.
Gold is also on track for a near 30-per cent gain this year, fueled by investors seeking an alternative to increasingly volatile currencies, stocks and bonds, against a backdrop of an uncertain US economic outlook and Europe's debt crisis.
"Is gold a bubble? Perhaps, but the trend is still clearly 'from the lower left to the upper right' on the charts and in all currency varieties," said Independent investor Dennis Gartman.
Gartman, at times cautious on gold's rally this year, said earlier this week he was expanding his position by buying bullion in US dollar terms as central banks stock up.
Gold rose despite falling US Treasury yields after strong demand for seven-year notes in an auction gave a stronger bid to Treasury securities across the curve. A sharp rise in US government bond yields on Tuesday fueled inflation concerns and added to gold buying.
Palladium near $US800/OZ
Palladium hit fresh nine-year highs, driven by expectations for robust demand next year.
Spot palladium reached a session peak of $US793.50, its highest since March 2001. It gained 0.6 per cent to $US789.97 an ounce.
Palladium has been the top pick of a number of funds and trading houses, which have cited demand from China, the world's largest auto market, as one of the prime drivers of consumption for the metal, which is used in catalytic converters.
Platinum inched up 0.2 per cent at $US1,755.99 and held near its seven-week highs.
