Gold jumps 2.3% on some safe-haven love

SAN FRANCISCO (MarketWatch) — Gold prices rebounded Wednesday, reclaiming a chunk of Tuesday's big loss as the reality of the U.S. government shutdown sank in and the debt-ceiling battle loomed on the horizon.

Gold also found support following disappointing data on U.S. private-sector employment, but some analysts remained bearish on the precious-metal's outlook.

Gold for December delivery (GCZ3)  rose $29.80, or 2.3%, to $1,315.90 an ounce on the Comex division of the New York Mercantile Exchange following a drop of more than $40 an ounce on Tuesday to its lowest settlement in almost two months.

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John Shipman takes a look at today's market action, including three stocks to watch today. Photo: Getty Images.

"Gold is benefiting from overall safe-haven flows" into assets such as U.S. bonds and the Japanese yen (USDJPY) , said Jason Rotman, president of Lido Isle Advisors. The yen strengthened against the U.S. dollar (DXY)  Wednesday and Treasury prices moved higher.

Furthermore, the weaker than expected ADP jobs numbers are also driving gold prices higher, as investors may be "less convinced" of a 2013 taper of the Federal Reserve's bond-buying program with slower than expected jobs growth, he said.

The bond-buying program, also known as quantitative easing, has helped to support gold prices as it tends to pressure the dollar and can lead to inflation. Gold is often seen as a hedge against inflation.

Data Wednesday showed private-sector jobs rose by 166,000 in September, which was below forecasts, and August's job gains were revised down. U.S. stock fell sharply following the data, while the dollar dropped against rivals. A weaker dollar tends to buoy prices for dollar-denominated currencies.

Some bearish views

Despite Wednesday's gains for gold, some analysts are bearish about the metal's outlook.

In a note, Citigroup analyst Jon Bergtheil said gold peaked in 2011 and is still in a bear market.

"Only the occasional rally will provide some optimism and we believe that the recent bear-market rally is drawing to a close," wrote Bergtheil, who also downgraded shares of miners Fresnillo PLC (UK:FRES)  , Randgold Resources Ltd. (UK:RRS)   (GOLD)  and Polyus Gold (RU:PLZL) .

Metals miners defied broad stock market weakness on Wednesday, however, to track the climb in gold prices. The Philadelphia Gold and Silver Index (XAU)  tacking on 1.4% as shares of Barrick Gold Corp. (ABX)  rose 2.8% following Tuesday's 3.2% decline.

The gold-backed SPDR Gold Trust exchange-traded fund (GLD)  rose 2%, rebounding from losses in the past two sessions.

But Fitch Ratings said this week that a rebound for gold prices over the next few years is unlikely given expected unwinding of U.S. quantitative easing and expectations of "improving, but unspectacular growth."

Fitch said its ratings of gold producers involve a base-case price assumption of $1,200 per troy ounce for the next few years. However, the ratings firm said it really doesn't see that as a price floor "because recent price trends have been influenced far more by the use of gold as a financial instrument and a hedge against inflation than by industrial demand."

"Given the change in sentiment as central banks signal unwinding of economic stimulus, we recognize it is possible that the gold price could find a new floor below this level for an extended period," said Fitch, saying one stress scenario that sees gold falling to $1,000 an ounce would put some gold miners' ratings under "significant pressure."

Bloomberg News

Still, Michael Haynes, chief executive officer at online precious-metals dealer APMEX Inc., said that some buyers for precious metals see the drop in prices as a "huge opportunity, especially in view of the U.S. budget crisis and the impending U.S. debt limit crisis."

Among other metals, December silver (SIZ3)  rose 69 cents, or 3.2%, to $21.86 an ounce.

January platinum (PLF4)  rebounded $9.50, or 0.7%, to $1,394.80 an ounce, while December palladium (PAZ3)  added $1.60, or 0.2%, to $720.50 an ounce. Copper for December delivery (HGZ3) was up almost 4 cents, or 1.2%, at $3.31 a pound.