Gold moved sharply higher Tuesday, as jitters surrounding Italy’s financial picture filtered into broader financial markets, lifting prices for the precious metal toward their highest finish in five weeks.
“Precious metal bears are getting burned by the sudden return of Italy’s huge public debt to the headlines,” said Adrian Ash, director of research at BullionVault.
The European Commission raised concerns over the budget plans of the antiestablishment Italian government. Last week, the Italy’s government proposed a budget deficit target of 2.4% of its gross domestic product, which would triple the deficits proposed by previous governments. The budget plans are seen as putting Italy in conflict with the European Union’s stringent fiscal rules.
“The speed of today’s rally in precious metals suggests rapid short-covering by hedge funds and other speculators who were betting against bullion,” said Ash.
Against that backdrop, December gold GCZ8, +1.48% was up $19.40, or 1.6%, at $1,211.10 an ounce. A settlement around this level would be the highest since Aug. 29 for a most-active contract, according to FactSet data. Gold futures fell 4.6% for the third quarter. They’re down roughly 7.5% for the year so far.
The yellow metal was knocked back to six-week lows in recent sessions as the ICE U.S. Dollar index DXY, +0.13% revived its 2018 march higher, including a 0.2% increase Tuesday.
Gold’s strength Tuesday is “impressive given the dollar is not weaker,” said Mark O’Byrne research director at GoldCore. “Gold is very oversold and due a bounce.”
“We have been bearish of late but think we have bottomed and a higher weekly close this week will bode well for October and into year-end,” he said.
Losses in global markets Tuesday, also helped to boost gold’s investment appeal, though U.S. stock indexes saw mixed trading.
Beyond the haven boost, interest rates remain the chief driver for precious metals. They’re sensitive to Federal Reserve interest-rate increases because they can push up U.S. bond yields, which can reduce the attraction of nonyielding bullion, and tend to boost the dollar, which makes gold more expensive for buyers using other currencies.
The Fed is expected to raise its benchmark rate for a fourth time this year in December and expectations for that move and any further tightening could be informed by Friday’s payrolls data, particularly its wage component.
Financial markets will hear from Fed Chairman Jerome Powell in a speech at the National Association for Business Economics conference in Boston at noon Eastern.
Meanwhile, December silver SIZ8, +2.40% rose 38.8 cents, or 2.7%, to $14.895 an ounce, after posting a drop of more than 9% in the third quarter. It’s trading at its highest since mid-August.