Gold rises on hope for U.S. easing, hedge fund bullish

Date: Thursday, August 16, 2012
Author: Frank Tang, Reuters

Gold rebounded on Wednesday from two straight losing sessions, as muted U.S. consumer inflation raised hopes for monetary stimulus and a prominent hedge fund manager's increased appetite for bullion brightened market sentiment.

Long-time gold bull John Paulson raised his stake in the No. 1 gold exchange-traded fund, SPDR Gold Trust, in the second quarter, a sign that the well-known money manager favors the metal as a long-term currency and inflation hedge.

Market hopes for gold-boosting monetary easing increased after data showed U.S. consumer prices stayed flat in July. In addition, a gauge of manufacturing in New York state contracted this month.

Gold has failed to break out of a range between $1,525 and $1,680 an ounce in the past four months as disappointment over a lack of more aggressive stimulus by the U.S. Federal Reserve and other central banks dampened buying. Lackluster global economic indicators, however, put a floor under the metal.

"We are stuck in a range and the investors have been very cautious on both ends of the $1,600 pivot point. Still, the market could react in a moment's notice because the volume is that thin," said Anthony Neglia, president of Tower Trading and a COMEX gold options floor trader in New York.

Spot gold rose 0.4 percent to $1,604.35 an ounce by 3:38 p.m. EDT (1938 GMT).

U.S. COMEX December futures settled up $4.20 at $1,606.60 an ounce. Trading volume was below 100,000 lots at around 3:40 p.m., some 40 percent below its 30-day average, preliminary Reuters data showed.

On the options front, gold's 30-day implied volatility hovered near a one-year low of 14. Still, some investors continued to use bullish option strategies such as deep out-of-the-money calls with strike prices between $1,900 and $2,000 to catch the metal's upside, COMEX floor traders said.

PAULSON UPS GOLD STAKE

Paulson's SPDR Gold Trust stake-raising marked his first increase since the first quarter of 2009, a U.S. regulatory filing showed late on Tuesday. The move boosted confidence that bullion prices have more room to rise this year despite a lackluster performance in the first half.

(Fund ownership changes: link.reuters.com/vet99s)

"The fact that ... one guy who made the most money in his gold fund is increasing his holding, you have to feel confident about that if you are a gold bull," said Mihir Dange, COMEX gold options floor trader for Arbitrage LLC.

Billionaire financier George Soros more than doubled his shares in the ETF, while Eton Park Capital's Eric Mindich had dissolved his stake by the end of the second quarter.

Among other precious metals, spot platinum inched up $1.39 to $1,391.99 an ounce, while spot palladium gained 0.1 percent to $573.41 an ounce. Silver rose 0.4 percent to $27.85 an ounce.