Gold ( Update 3)

(WSJ)Gold prices jumped to the highest levels in three months as a continued flight to safety by investors triggered so-called technical chart-based buying.

The price of the nearby January gold futures contract rose $37.10, or 4.3%, to $895.30 an ounce on the Comex division of the New York Mercantile Exchange, the highest settle since Oct. 8. The price of the most-active April contract rose $37.20, or 4.3%, to $897.70, after hitting as high as $905.50, the strongest level since Oct. 10.

"We're continuing to get what appears to be traditional flight-to-quality buying, even though the dollar continues to be strong," said Michael Gross, futures analyst with OptionSellers.com.

A stronger dollar typically pressures gold prices. But in the current environment, weakness in European currencies caused by troubles in the European banking sector is translating into buying of gold, said one trader.

"I think we're seeing people move into gold simply because they don't want to get caught in anything else," said Sterling Smith, vice president with FuturesOne. "If you want to be in dollars, you're either sitting on cash or very low-yielding instruments."

Bart Melek, commodity strategist with BMO Capital Markets, cited more flows into exchange-traded funds as an example of strong gold demand. Holdings backing the SPDR Gold Trust, the world's largest gold ETF, climbed 13.15 metric tons Thursday to a record 819.11 tons. A metric ton is equal to 2,204.62 pounds.

Momentum-based buying was triggered when gold accelerated through the 200-day moving average, an important technical-chart point, and broke above the late-December highs.

George Gero, vice president with RBC Capital Markets Global Futures, said some hedge-related selling from mining companies appeared to occur around $900, but this was overrun by investment demand and buying back of previously sold positions. He also cited speculative buying.

A key for gold may be what happens around $900, Mr. Smith said. The market had trouble maintaining momentum above that price in the fall.

Meanwhile, gold has shown a tendency to peak around roughly the third week of January, though last year it hit its record high in March, said John Person, president of NationalFutures.com.

In the world of commodities, my believe is most them are more technical-based driven and momentum-driven, due to leverage factor. It is kind of hard to play buy and hold unless we are very sure of buying at the very bottom, shorting at the top or positions are hedged. It's all about momentum and market psychology. With gold broke through 200-d MAV, I will now watch the reaction - normal reaction will be some retreat but maintain above US $ 850. Once this test is pass, then it's a buy technically. If one plays like a trader then we must abide by trader rules - we must have stop-loss limit, position sizing, bla,blaa,blaa..........

Other observation about gold. If I am forced to explain why gold shot up, technical chart buying is one. Other than that, fear of Dow going below 7,000. A start of a second financial Tsunami from European banks which could be much worse than American banks. European banks liabilities/GDP is about 335%[US $ 41 trillion] vs. USA 65%[9.8trillion]. Tough words from newly appointed Treasury secretary against China's Yuan drives fear of rising protectionism which could lead to global trade implosion pulls the whole world into depression.



Switch subject. GE's earning met expectation but at the lower end, share prices got hammered down by 11%.

(WSJ)General Electric Co. met its lowered fourth-quarter earnings target Friday -- with a big boost from a tax benefit -- but failed to resolve investor qualms about the recession's impact on its industrial and financial businesses.

GE reported progress in its plan to shrink and fortify its finance unit by boosting its assets and lowering its reliance on short-term borrowing, which dried up last fall amid the credit crisis.

But investors worry that GE may be forced to cut its dividend, or pay more to borrow money. GE shares fell nearly 11%, or $1.45, to $12.03 in 4 p.m. New York Stock Exchange trading. The stock is off 65% in the past 52 weeks.

Jeffrey Immelt, GE's chairman and chief executive, warned of an "extremely difficult" year. GE is focused on "controlling our own destiny" by cutting costs and looking outside the U.S. for pockets of growth, he said.