Gold rises 2% in rally after pledge to resolve crisis

GOLD rose 2% yesterday in a risk rally with equities and commodities, as the dollar tumbled after a renewed Franco-German pledge to introduce a plan to resolve the eurozone’s debilitating debt crisis.

Trading volume of gold futures was extremely thin due to the US Columbus Day holiday.

Bullion notched its biggest one-day gain in a week, as US stock markets, oil and the euro surged.

In the past four sessions, the metal gained 3% as bullion prices have moved up and down in sync with the S&P 500, while the safe-haven buying that spurred gold’s three-year rally was largely absent.

For oil, November Brent crude futures settled at $108.95 (€79.81) a barrel, above the 20-day moving average.

Meanwhile, gold continued to do well. “Gold is rallying as a commodity instead of a flight-to-quality asset. Until that trend changes, you can get your head ripped off trying to play the other side of it,” said Adam Klopfenstein, senior market strategist at futures broker MF Global.

“Right now, the theme for gold is its positive correlation with equities and the commodity spectrum.”

Spot gold was up 2.1% by $1,672.70 an ounce. Silver was up 2.8% at $32.03. US gold futures for December delivery settled up $35 at $1,670.80 an ounce.

Volume was about two-thirds below its 30-day average as banks, government offices and the bond market shut for the US Columbus Day holiday. Even so, yesterday’s turnover was sharply lagging the level on last year’s holiday.

Jonathan Jossen, COMEX gold options floor trader, said more options dealers are buying volatility following a recent decline in gold option prices, indicating the price of the underlying gold futures is due for a rally.

Bullion rose about 3% as US stocks rallied on optimism about Europe. &&

Other precious metals and commodities benefited from a 2% drop of the dollar against the euro, its largest one-day decline in 15 months. Bullion traders also said news that hedge fund manager John Paulson lost more money in September showed the correction in gold may have run its course.

Disappointing performance at Paulson & Co suggests the firm could have liquidated some of its gold investments to meet margin calls amid losses in other markets back in September, traders said.

Steadier gold prices suggest the heaviest bouts of liquidation might have already ended, they said.

Paulson’s flagship Advantage Plus fund, which uses some borrowed money to help boost returns, tumbled 19.35% last month the firm told clients.

His gold fund, which includes metal and mining companies, lost 16.35% last month and trimmed its year-to-date gain to 1.34%.

Gold prices have been choppy since falling as much as 20% from the record highs hit early in September.