Thu Jul 8, 2004

NEW YORK (Reuters) - Gold surged to a three-month high in New York futures trade Thursday, catapulting silver into an even bigger rally, as investors and speculators swapped the dollar for harder assets amid indications that U.S. economic growth is coming off the boil.

Dollar disinvestment pushed the euro to a three-month high and buttressed gold as a safe haven. U.S. warnings about a major terrorist attack was another bullish factor in the day's trade, along with a rise in oil prices.

At the COMEX division of the New York Mercantile Exchange, August gold reached $409.60 an ounce in late trade to mark its highest price since April 13. It settled up $5.50, nearly 1.4 percent, at $408.20, extending Wednesday's $9.70 rally.

Gold has mostly been moving in the opposite direction to the dollar, correlating closely with the euro, which slipped overnight but rallied back to its highest since mid-March at $1.2406 by mid-morning.

David Rinehimer, head of commodities research at Citigroup Global Markets, cited relief that gold was able to hold above $400 after Wednesday's technical breakout. "The funds are becoming a little more confident as far as the upside potential in the gold," he said. "There is not too much gyration on the dollar side, though I think sentiment toward the dollar turned a little bit more negative."

Gold has been choppy this week, trading down to $389 on Tuesday after skidding from its June 28 high at $405.60, which was only exceeded Thursday. Gold posted a 15-year high at $433 in April.

Homeland Security Secretary Tom Ridge warned Americans Thursday that al Qaeda may try to carry out a "large-scale attack" to disrupt the upcoming elections, though the government did not raise the terror threat level.

"Tom Ridge convinced everyone to get long," said a broker at a futures commission merchant. "The euro certainly helped things, along with silver breaking out of an equivalent range."

Thin summer trading conditions are exacerbating the moves. One statistical measure of gold's gyrations, implied options volatility, was up 1 percentage point over the last week to around 17.5 percent for one-month options on Thursday, according to a dealer.

But Thursday's rally fed on itself, as speculators vied not to miss out. Confidence in gold was revived by last week's weaker-than-expected U.S. jobs figures, which caught the market off guard two days after the Federal Reserve finally responded to the economic recovery by raising interest rates for the first time in four years, but only by a quarter of a percentage point. Oil prices rose above $40 for the first time in a month after gold closed Thursday, feeding concerns about economic slowing.

"I don't know what's sparking it," said a floor broker. "Remember, just a couple of days ago gold traded down to $389."

He added, "Some people think the numbers are so soft that you are not going to be talking about a 50-basis point increase in interest rates soon. So that kind of induced people to start buying metals again."

Spot gold rose to $407.25/408.00 from the previous close at $402.00/2.75. Thursday's afternoon fix in London was $405.35.

The September silver contract followed gold to set an 11-week high of $6.47 an ounce. It settled at $6.435, with a gain of 31 cents, or 5 percent. It posted an early low of $6.105.

Spot silver last fetched $6.39/42, up from $6.10/13 at the end of the previous New York session. The daily fix was $6.20.

NYMEX October platinum went up $14.60 to $805.50 an ounce, hitting a one-month high at $808.50. Spot fetched $806.00/811.00. September palladium rose $1.05 to $226.95 an ounce. Spot was last quoted at $221.50/227.50.

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