Gold rises as recent lower prices entice buyers

Gold prices rose on Friday as buyers take advantage of the lower prices. According to expert Jim Steel, "There's just a lot of volatility in the market," and gold has likely hit a bottom and any drops below that $1600 level will result in "vigorous buying."

By Claudia Assis and Myra P. Saefong
Sept. 30, 2011, 1:02 p.m. EDT
Market Watch

SAN FRANCISCO (MarketWatch) — Gold futures rose Friday, finding firmer footing as lower prices attracted physical buyers and investors didn’t want to spend the weekend away from the perceived safety of the metal.

Gold for December delivery GC1Z +0.84% rose $14, or 0.9%, to trade at $1,631.40 an ounce on the Comex division of the New York Mercantile Exchange.

Prices traded closer to the session’s high of $1,642.50 on some momentum buying ahead of the weekend. It had earlier traded as low as $1,607.80 an ounce.

“There’s just a lot of volatility in the market,” said Jim Steel, a precious metals analyst with HSBC in New York. Gold has likely hit bottom, however, with emerging-market physical buying providing support for prices, he added.

“Any drops below $1,600 (an ounce) will be met with vigorous buying,” Steel said.

The December contract traded below $1,550 an ounce earlier this week. On the month, gold has lost 11%, but it has risen 8.5% on the quarter.

The dollar gained ground against most of its currency rivals, pressuring prices for most commodities. The dollar index DXY +0.74% , which measures the U.S. unit against a basket of major currencies, rose to 78.412 from 77.917 late Thursday. Read more about currencies action.

“It looks like the worst of any margin-related selling might be behind us, but I don’t think we’ll pop right back up to the recent highs,” said Brien Lundin, editor of Gold Newsletter.

The steep decline for the month was “aided by heavy shorting, and those shorts will likely attempt to defend their positions on the way back up. We are trading upon headlines, however, in every asset class, and breaking news could send gold rapidly in either direction,” he said in emailed comments.

The metal’s September swoon came amid volatile trading, with December futures trading at a record high above $1,900 early this month before embarking on the plunge that took it below the $1,600 level.

Economic data released Friday was mixed. The U.S. Commerce Department said income fell for the first time in almost two years. Read about incomes.

The Institute for Supply Management-Chicago Inc. reported that manufacturing activity in the Chicago region expanded at a more rapid pace in September. Read about Chicago PMI.

Also, a gauge of consumer sentiment rose in September after tumbling to a nearly three-year low in August. Read more about consumer sentiment.

Over in China, the HSBC China Purchasing Managers Index showed the manufacturing sector contracted in September for a third straight month. Read about China’s PMI data.

Metals mostly used for industrial purposes felt the pinch, with December copper HG1Z -2.85% down 6 cents, or 1.9%, to $3.18 a pound.

December silver SI1Z -0.86% declined 15 cents, or 0.5%, to $30.35 an ounce.

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