LONDON - Precious metals drifted higher on Monday on short-covering, with gold hitting its highest level in nearly three weeks and platinum rising to a seven-week peak.
Silver also climbed to its highest since Jan. 3, while palladium prices rose to a two-week high.
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"There is a bit of short-covering. People thought gold is going to dip more, but it didn't. Oil recovered a bit and the price just went up on the back of it," a precious metals trader in London said.
The short position holders of a contract agree to sell the security on a future date, betting that the price will go down.
"I think it's failing around $639-$640 level as big sell orders are around there. I think it would fall to around $635 by the end of the day, but at the moment gold looks fairly strong," the trader said.
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Spot gold rose as high as $639.60 an ounce and was quoted at $639.10/639.85 by 1606 GMT, against $635.00/636.00 in New York on Friday, when prices jumped more than one percent on a sharp recovery in oil.
"The movements of the energy market will remain influential to gold in the coming sessions," TheBullionDesk.com said in a daily report, adding the market looked positive on the charts but the metal needed to clear the $642-$648 area before moving towards a key technical level of $676.
Oil rose one percent towards $53 a barrel after a drop in temperatures in the world's biggest heating oil market, the U.S. Northeast, and stubborn price support at $50 spurred a fresh round of investor buying.
Gold is seen as a hedge against oil-led inflation.
"I think it's a very positive price and I am just waiting for another round of investor buying. Hopefully that will materialise soon. For me, the bias is still on the upside," David Holmes, director of precious metals sales at Dresdner Kleinwort, said.
LONG-TERM OUTLOOK
Analysts remained bullish on gold's outlook in the long term, while gold producers and refiners geared up to boost output.
Peter Hambro Mining, Russia's third-largest gold miner, raised output 5 percent to 261,000 ounces last year and said it had resolved questions over mining licences.
"The outlook for 2007 is once again encouraging, as the gold price continues to move in our favour and our production grows," the company said in a statement.
Production at Dubai's Emirates Gold, the Middle East's largest gold refiner, fell 18.3 percent to 170.5 tonnes in 2006, but the firm planned to lift output this year, Managing Director Mohammad Shakrachi said.
In other precious metals, platinum rose as high as $1,163 before easing to $1,162/$1,168 an ounce, compared with $1,156/$1,162 in the U.S. market.
Palladium climbed to $344 and was last quoted at $342/347 an ounce, versus $339/344. Silver was at $13.05/13.12 an ounce after rising to $13.09, compared with $12.82/12.89 late in New York.
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