Gold and silver futures rally as dollar drops

Finanaceroll – Gold and silver futures rallied Monday, with investors showing strong appetite for commodities and stocks as the U.S. dollar fell sharply against other major currencies.

Gold for December delivery GC1Z +2.24%  rose $32.80, or 2%, to $1,668.50 an ounce on the Comex division of the New York Mercantile Exchange.

“Gold is remaining bid-up on not just [on] a slightly weaker U.S. dollar, but particularly buoyant physical demand amongst retail investors,” said Ross Norman, chief executive officer at London-based bullion brokers Sharps Pixley.

“Demand in China has been especially strong with the bars selling at more than a $3 premium over London prices,” he said.

The gains for gold came as the U.S. dollar dropped against major rivals. Gold and the dollar tend to move in opposite directions, as a decline in the dollar makes gold cheaper and therefore more attractive for holders of other currencies.

The euro surged 2% against the dollar to $1.3651 after the leaders of Germany and France vowed Sunday to do all that’s needed to strengthen the European banking sector. The two leaders said the package of measures will be revealed by the end of the month, but provided few details on their plan. Read more about the Merkel and Sarkozy meeting.

The dollar index DXY -1.68% , which tracks the performance of the greenback against a basket of other major currencies, fell 1.5% to 77.545. Read about Monday’s currencies action.

On Wall Street, the Dow Jones Industrial Average DJIA +2.44%  traded sharply higher, up 268 points at 11,371.

Other metals traded sharply higher Monday. December silver futures SI1Z +3.81%  rose $1.267, or 4.1%, to $32.27 an ounce.

December palladium PA1Z +5.05%  led the percentage gains among the major metals, adding 5.5%, or $32.10, to $617.95 an ounce, while January platinum PL2F +2.24%  rose $34.10, or 2.3%, to $1,527.40. December copper HG1Z +3.50%   also climbed by 9 cents, or 2.7%, to $3.36 a pound.

For gold, “physical sales in China for Golden Week are 50% higher than levels seen a year ago when gold was over $300 per ounce cheaper,” said Norman, referring to spot gold prices.

Spot gold prices have “gone into hibernation following record prices at $1,920 in early September and then the most monumental fall of over 20%. Gold has just recovered from that unusual bout of volatility and the mood is quietly positive,” he said. [Mw]