Forexpros – Gold futures added to strong gains on Monday, firming above the key USD1,700-an-ounce-level as fresh hopes European leaders will reach a deal to contain the region’s debt crisis weakened the dollar and boosted the appeal of commodities.
On the Comex division of the New York Mercantile Exchange, gold futures for February delivery traded at USD1,721.35 a troy ounce during U.S. morning trade, rallying 1.95%.
It earlier rose by as much as 2.1% to trade at USD1,724.05 a troy ounce, the highest since November 21.
Market sentiment strengthened after reports that European Union leaders were moving closer to agreeing on a fiscal pact to halt the spread of the region’s debt crisis.
The pact, if agreed, would make budget discipline legally binding and enforceable by European authorities and would give the European Central Bank more scope to undertake large scale bond purchases.
The news boosted appetite for riskier assets, such as stocks and commodities and prompted investors to shun the U.S. dollar.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, declined 0.85% to trade at 79.15. Gold prices often move inversely to the U.S. dollar, as gold becomes less expensive for buyers using other currencies.
For much of the last year, investors’ typical reaction to upbeat news from Europe was to sell gold, as it dampens the safe haven appeal of the precious metal, but that relationship has unraveled recently.
In recent sessions, gold has tended to move in line with stocks and other commodities, losing some of its appeal as a safe haven asset as investors prefer to turn to the relative safety of the U.S. dollar.
German financial service provider Commerzbank said in a report earlier that, “Gold is currently continuing to behave more like a risky asset than a safe haven in times of crisis.”
“In our opinion, this is attributable to the behavior of futures-market players who feel less pressure to sell as their risk aversion declines,” the report added.
Elsewhere on the Comex, silver for March delivery rallied 3.55% to trade at USD32.19 a troy ounce, while copper for March delivery surged 3.56% to trade at USD3.401 a pound.
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