Gold Prices Rebound From Longest Slide in Almost Two Years

June 16 -- Gold rebounded from the longest slump in almost two years on demand from investors seeking returns unavailable in the stock and bond markets.

Gold before today fell for seven sessions in a row, tumbling 23 percent from a 26-year high of $732 an ounce in mid-May. The 14- day relative-strength index fell below 30 in the past two days, a signal the metal may rise. Gold has gained 9.9 percent this year, while the Standard & Poor's 500 Index fell 0.2 percent, and holders of the benchmark 10-year U.S. Treasury lost 3.6 percent.

``You've got people who've seen this market break more than $100 in a month, and that can be the basis for a recovery,'' said Stephen Platt, a commodities analyst at Archer Financial Services Inc. in Chicago. ``I'm not a seller down here.''

Gold futures for August delivery rose $3.80, or 0.7 percent, to $570.30 an ounce on the Comex division of the New York Mercantile Exchange. The seven-session slide was the longest since July 2004. The metal still is down 6.9 percent this week.

Gold for immediate delivery rose $9.50, or 1.7 percent, to $569.25 an ounce at 2:04 p.m. New York time.

``Gold was oversold, and the market may be finding the level to settle at, and it could then move a bit higher,'' said Alastair McIntyre, head of marketing at ScotiaMocatta in Hong Kong.

A weaker dollar also helped boost gold prices. The metal traditionally moves in the opposite direction of the U.S. currency. The dollar has fallen 5.6 percent this year against a basket of six major currencies.

The dollar fell after the Treasury Department said foreign investors purchased a net $46.7 billion of U.S. stocks and bonds in April, less than the $63.4 billion trade shortfall for that month.

Dollar Correlation

``The correlation between the dollar and gold seems to be more important now,'' said David Gornall, head of foreign exchange and bullion at Natexis Commodity Markets Ltd. in London.

About 8 percent of central banks polled in an annual UBS AG survey said they are planning to diversify foreign-exchange reserves away from U.S. government debt into gold.

``This is the first time that central banks have shown an inclination to buy gold for diversification purposes,'' UBS analyst John Reade in a report.

Lower prices may also draw jewelers, who accounted for about 73 percent of purchases last year. Global gold demand dropped 16 percent in the first quarter as higher prices deterred purchases by jewelers, according to the producer-funded World Gold Council.

``We're starting to see physical demand kick in,'' said Jeremy Charles, head of precious metals in London for HSBC Bank USA. Gold may rebound to $625 an ounce in as little as two months, he said.

Some gold investors, undeterred by the metal's drop in the past month, have increased have their holdings of bullion-backed securities, indicating they expect prices to rebound.

Exchange Traded Gold

Exchange Traded Gold, which manages gold-backed securities, had 452 metric tons of gold under management as of yesterday, compared with 443 tons on June 1, said Simon Village, principal of the London-based company. Its gold-backed securities trade on exchanges in the U.S., the U.K., Australia, France and South Africa.

``If they were going to bolt, they'd have done it at a higher level, when it started to fall,'' Village said. ``Gold's got a second wind coming.''

Silver futures for July delivery rose 23.5 cents, or 2.4 percent, to $9.97 an ounce on the Comex. Prices have gained 12 percent this year.

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.