NEW YORK, Jan 23 (Reuters) - U.S. gold futures rallied almost 2 percent amid heavy turnover on Tuesday as buying by funds, a sharply lower dollar and supply concerns in Bolivia helped lift the precious metal to its loftiest level in three weeks.
Silver, platinum, palladium, and copper all hit new peaks.
Most-active gold for February delivery on the COMEX metals trading division of the New York Mercantile Exchange was up $11.80, or 1.9 percent, at $645.90 an ounce. It was trading in a $15-range between $632.30 and $647.00 an ounce -- its highest level since Jan. 3.
Estimated volume was a whopping 70,000 contracts, and options turnover was 33,000. Turnover in the Chicago Board of Trade's electronically traded 100-oz gold contract was 59,706 contracts as of 2:11 p.m. EST (1911 GMT). (http://www.cbot.com/cbot/pub/page/0,3181,297,00.html).
"We've got a lot of buy-stops going off. It looks to me like we're back to where we were. The funds were looking at the old fundamentals," said George Gero, vice president at RBC Capital Markets Global Futures.
The February contract fell almost 5 percent in the first week of the year due to fund liquidation, but it has since more than recovered its losses.
Gero said there were a host of positive factors supporting gold, including geopolitical concerns out of President Bush's upcoming State of the Union speech, good physical demand in the Far East, future ETFs in India, a weak stock market, the low dollar and higher crude.
"And then of course, the saber rattling that's coming from a new area, where the Bolivian president is talking about nationalizing the mining business," Gero added.
Bolivian President Evo Morales said on Monday he had sent a bill to Congress to raise taxes on foreign mining firms, marking his first year in office with vows to increase state control over natural resources.[ID:nN22490730]
Frank Holmes, chief executive of U.S. Global Investors, which manages over $4.8 billion in mutual fund assets, attributed gold's rally to a significantly weaker dollar as the sterling hit a multiyear high against the greenback.
The dollar fell against the euro and sank to a 14-year low versus sterling as strong economic data and hawkish comments by central bankers suggested interest rates will continue to rise in Europe.
The euro climbed to a record high versus the low-yielding yen as investors favored higher-yielding currencies. Supporting that trade were comments from European Central Bank officials, who said they may need to raise interest rates from the current 3.5 percent if growth in the region is solid. [ID:nL23535132]
Holmes said that bullion was also buoyed by rapidly growing investment demand, which was reflected by the popularity of gold ETFs around the world.
Exchange-traded funds (ETFs) enable investors to buy and trade securities on an exchange, giving them a return based on commodity prices without the need to trade futures or to take physical delivery.
Andy Montano, director at bullion dealer ScotiaMocatta, said that currency movement helped spark gold's gain, which was supported by good fund buying.
Oil rose nearly 5 percent to over $55 a barrel, partially retracing a steep price slide this month, as cold weather hit the U.S. Northeast, the world's biggest heating oil market.
Gold is generally seen as a hedge against oil-led inflation, while the yellow metal, which is priced in U.S. dollars, often moves in the opposite direction of the greenback.
Spot gold was quoted at $646.00/7.00, compared with $632.60/3.60 an ounce traded late Monday. London's afternoon gold fix was $642.50.
In other precious metals, COMEX March silver closed up 26.0 cents, or 2 percent, at $13.260 an ounce, traded between $12.950 and $13.330 -- its highest level in 5-1/2 weeks.
Spot silver rose to $13.210/3.280, against $13.010/3.080 an ounce in late Monday trade. Silver was fixed in London at $13.090 an ounce.
NYMEX April platinum finished up $18.10, or 1.5 percent, to $1193.20, the highest since Dec. 1. Spot platinum fetched $1,170.00/75.00.
NYMEX March palladium gained $3.65, or 1.1 percent, to end at $350.35 an ounce, a four-month high. Spot palladium was quoted at $347/352.00.