July 9, 2012 / 10:45 AM / in 5 years

PRECIOUS-Gold rises on China inflation, commodity rallies

5 Min Read

* Tame Chinese inflation leaves room for policy action
    * Grains rally boosts inflation-hedge demand
    * US futures volume low after Friday's sell-off
    * Coming up: Delayed Commitment of Traders report 1930 GMT

 (Adds details, updates market activity)
    By Frank Tang
    NEW YORK, July 9 (Reuters) - Gold rose in quiet trade on
Monday after the previous session's sharp drop, lifted by higher
commodity prices and benign inflation data from China.
    Fears of rising commodity prices because of a record high in
U.S. soybean futures and corn's rally amid severe dry conditions
in the U.S. Midwest boosted the metal's inflation-hedge appeal.
Surging crude oil prices and a weaker dollar also boosted gold.
    Also underpinning bullion was Chinese data showing the
inflation rate undershot expectations in June, signaling more
room by China's central bank to ease monetary policy to stave
off a slowdown. 
    Traders said option trading suggested the gold price could
rebound after its recent weakness due to deflation fears amid a
string of disappointing economic data. The metal has lost 2
percent in the previous two sessions.
    "There is option activity here and volatility is being
bought over. There is a big put buyer buying futures and August
$1,550 puts, and that usually pertains a move up," said Jonathan
Jossen, COMEX gold options floor trader.
    Spot gold climbed 0.5 percent at $1,590.50 an ounce
by 2:23 p.m. EDT (1823 GMT). 
    U.S. COMEX gold futures for August delivery settled
up $10.20 at $1,589.10, with volume at about 40 percent below
its 30-day average, preliminary Reuters data showed.
    Silver rose 1.3 percent to $27.41 an ounce.
    Gold dropped 1.5 percent on Friday after weak U.S. jobs data
failed to raise hopes that the Federal Reserve will embark on a
third round of asset-buying program.
    San Francisco Federal Reserve Bank President John Williams
said on Monday the U.S. central bank is prepared to do more to
bring down unemployment that is far too high and to steer
inflation back up to the Fed's 2 percent target. 
    Economists polled by Reuters now attach a 70 percent chance
to the Fed's embarking on another round of government-bonds
buying to lower borrowing costs. That estimate has increased
from around 50 percent in late June. 
    
    CHINA'S INFLATION TAME
    China's annual consumer inflation eased more than expected
to 2.2 percent in June from 3.0 percent in May, creating more
room for the central bank to ease policy to bolster economic
growth.        
    Daniel Smith, an analyst with Standard Chartered, said that
possible rate cuts in China will increase risk appetite.
Contrary to the belief that gold is a safe haven, bullion tends
to rise with other assets when liquidity improves on
central-bank actions, he said.
    Among platinum group metals, platinum inched up 0.1
percent to $1,439.23 an ounce, while palladium rose by
1.1 percent to $579.08 an ounce.
 2:23 PM EDT     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold AUG   1589.10  10.20   0.6  1576.00 1593.10   85,332
 US Silver SEP  27.444  0.524   1.9   26.870  27.480   20,409
 US Plat OCT   1445.90  -3.60  -0.2  1435.00 1451.30    3,695
 US Pall SEP    583.90   3.55   0.6   575.40  584.85    1,318
                                                               
 Gold          1590.50   8.00   0.5  1577.45 1592.80         
 Silver         27.410  0.340   1.3   26.960  27.480
 Platinum      1439.23   1.10   0.1  1438.75 1443.75
 Palladium      579.08   6.18   1.1   577.75  583.75
                                                               
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        104,088   184,954   194,234     19.66   -0.06
 US Silver       23,734    60,100    58,016     30.86    0.87
 US Platinum      3,782    12,280     9,102        23    0.00
 US Palladium     1,339     4,662     4,605                  
                                                               
 
 (Additional reporting by Harpreet Bhal and Amanda Cooper in
London; editing by Sofina Mirza-Reid and Marguerita Choy)

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