US gold ends up on weak dlr, crude; eyes $800/oz

U.S. gold futures finished $5
higher on Monday after initially surging to just below $800 in
electronic trade, as a dollar slump and record crude oil prices
prompted bullion investors to enter the market.

However, analysts cautioned that a near-record high in
speculative net long positions in the futures market could
prompt a correction in gold before prices could rise further.

Carlos Perez-Santalla, a COMEX floor trader at Hudson River
Futures in New York, said that he was bullish on gold in the
near term because the downside for gold futures was limited
despite several chances for price correction last week.

Most-active December gold (GCZ7: Quote, Profile, Research) on the COMEX division of
the New York Mercantile Exchange settled up $5.10 at $792.60 an
ounce. It hit a low of $787.70.

In overnight electronic sessions, COMEX gold traded as high
as $798.30 as the dollar fell to a fresh record low against the
euro and a major currency basket on speculation that the Federal
Reserve will cut U.S. interest rates.

The Federal Reserve is widely seen cutting rates by a
quarter point to 4.5 percent on Wednesday from the current 4.75
percent, but other analysts said it may try to cut even more to
ease the credit markets and boost the ailing housing sector.

Oil prices jumped to a record high for a third straight day
on Monday as Mexico briefly halted one-fifth of its production
due to bad weather and the dollar hit new lows. U.S. crude
(CLc1: Quote, Profile, Research) soared to an all-time high above $93 a barrel.

Gold is used by investors as a hedge against inflation,
while a lower dollar makes gold, which is denominated in the
greenback, cheaper for holders of other currencies.

CORRECTION IMMINENT?

Meanwhile, the Commodity Futures Trading Commission said in
its latest Commitment of Traders report that speculative net
long positions in COMEX gold fell 7.7 percent in the week to
Oct. 23, after gaining 5.9 the previous week.

John Reade, head of precious metals strategy of UBS in
London, told clients in a note that the large long positions
made him wary of recommending purchases at the current levels.

"But with positioning so long in all metals -- and no sign
of supportive jewellery or industrial demand, a correction, when
it comes, will be likely brutal," Reade said.

Gold futures had rallied almost $50 to Monday's session high
of $798.20 from its low of $749 last Monday.

In a note to clients, Jon Nadler, senior analyst at Kitco
Bullion Dealers in Montreal, cited cautionary signs and
overbought conditions for the gold market.

Nadler said that 1,000 rupees per gram price of India's gold
futures <0#mau:> was a "visible dent" to the country's
festival-related buying. India is the world's largest consumer
of bullion.

Meanwhile, the New York Mercantile Exchange said the open
interest levels of its gold futures breached 500,000 contracts
to a new record high. [ID:nN29429399]

In addition to the Fed's rate-setting decision on Wednesday,
major economic indicators later this week, including the advance
reading of the third-quarter real gross domestic product and
October payrolls report, will likely to set the tone for the
precious metals market.

At 2:15 p.m. EDT (1815 GMT), spot bullion traded at
$788.90/789.70, compared with the Friday New York close at
$783.80/784.30. Earlier, spot gold hit a new 28-year high of
$794.40. London bullion dealers fixed the afternoon spot
reference price at $788.50.

COMEX estimated final volume at 116,300 contracts, and gold
options were estimated at 36,324 lots. Turnover in Chicago Board
of Trade electronic 100-oz gold futures was 28,497 lots at 2:41
p.m. EDT (1841 GMT) http://www.cbot.com/cbot/pub/page .

Platinum futures also rose to an lifetime contract high of
$1,374.90 in early sessions on robust investment demand.

However, NYMEX January platinum (PLF8: Quote, Profile, Research) reversed initial
gains to finish down $3.60 at $1,465.50 an ounce. Spot platinum
was quoted at $1,454/1,458.

COMEX December silver (SIZ7: Quote, Profile, Research) closed up 15.0 cents or 1.1
percent at $14.430 an ounce, trading between $14.290 and
$14.540.

Spot silver was quoted at $14.39/14.44, higher than
Friday's late New York quote of $14.20/14.23. London silver was
fixed at $14.41.

December palladium (PAZ7: Quote, Profile, Research) eased 55 cents to end at $375.20
an ounce. Spot palladium fetched $371/375.