Gold Settles Higher, Outlook Bullish

Gold prices settled higher on Friday as the euro climbed against the dollar after news emerged that Spain was preparing to officially request a bailout while recent bout of monetary easing from global central banks also kept investors interested in taking bullish bets on the metal.

On Friday, gold futures for December delivery inched up 0.4% to settle at $1,778 an ounce, thus posting weekly gain of 0.3%. The metal has ended higher for fifth successive week.

The bullion market, which for most part of the year, remained subdued owing to lack of economic stimulating measures from central banks, rallied more than 10% since August when the ECB hinted at resumption of its short term bond purchase program (it later announced early September) followed by Fed’s decision to provide another round of QE.

The yellow metal’s recent rally has pushed it towards to a “golden cross” on technical charts –a point or a technical indicator which implies that there are more gains in store for gold in the intermediate and long-term period. Earlier this week, metal’s 50 day moving average edged past its 200 day moving average, which in technical terms is referred to as “golden cross”. Previously, the “golden cross” was formed in February 6^th 2009, and gold prices rallied 11% for next 11 successive sessions.

Commenting over recent monetary easing and its impact on gold markets, Anthony Lazzara with Lido Isle Advisors said to MarktWatch, “Logically, if the central banks of the world are printing more and more money, one can surmise that investors will want some store of wealth which cannot be reproduced to infinity, and at this point, gold and silver fit that bill.”

Echoing Lazzara sentiment with regard to bullion investing, popular, Hedge fund manager Ray Dalio said in an interview with Reuters, “I think gold should be a portion of every one’s portfolio to some degree because it diversifies the portfolio. It is the alternative money.”

Meanwhile, many traders believe that heavy buying of call options as high strike price sould further increase the price of gold in coming weeks.  The open interest—a gauge on total number of outstanding short and long contracts—touched a one year high for last two sessions. On Thursday, COMEX Future’s open interest touched 483,107 lots. In last 30 days, open interest on U.S. golf futures rose by 25%, a data provided by Reuters showed.

Spot gold gained 0.6 percent to close at $1,777.19 an ounce.  The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.29% higher at $171.96.

A weakness in the U.S. dollar vis-à-vis the euro also bolstered the demand for the metal. The euro gained after a report carried in Financial Times showed that EU officials were working closely with Spanish authorities in preparing the final draft for the impending bailout. Once this is worked out, it will pave the way for the implementation of the ECB’s short term bond buying program, which will not only put a lid on speculation and resultant soaring of yields on Spanish sovereign bonds but could also improve country’s structural weaknesses.

The Dollar Index—a gauge on U.S. unit’s performance against a basket of six most traded currencies–fell to 79.278 from 79.428 in North American trade late Thursday.

Moving onto some other precious metal markets, silver inched up 0.3 percent to close at $34.68 an ounce. Platinum gained 0.9 percent to settle at $1,635.24 an ounce, while its sister metal palladium climbed 1.4 percent to $669.25.

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Post Written By: Ed Liston Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.