Gold futures jumped, capping the biggest two-day gain since June, as an oil rally damped concern that inflation will remain low and revived demand for the metal as a store of wealth. Silver surged the most in nine months.

Aggregate gold trading more than doubled compared with the 100-day average for this time, according to data compiled by Bloomberg. Today, an option wager on a price rebound to $1,200 an ounce surged as much as fivefold, while Brent crude jumped as much as 2.9 percent.

Oil tumbled into a bear market last month, and Federal Reserve officials warned that lower energy costs may hold down consumer costs in the near term. Crude’s slump is increasing the likelihood that producers will curb output, helping to stabilize prices. Fed Bank of St. Louis President James Bullard said today that inflation expectations have rebounded since October.

“The spike in oil prices acted as a catalyst,” David Meger, the director of metals trading at Vision Financial Markets in Chicago, said in a telephone interview. “There was a lot of fund buying.”

Gold futures for December delivery rose 2.1 percent to settle at $1,185.60 at 1:38 p.m. on the Comex in New York. Earlier, the price reached $1,192.90, the highest for a most-active contract since Oct. 31. In two days, the price climbed 2.3 percent, the most since June 20.

Total volume rose to an estimated 315,276 contracts, the seventh time this year trading topped 300,000. Yesterday, aggregate open interest climbed to the highest since May 22, 2013.

More than 10,000 contracts for December delivery traded around 10:06 a.m., with prices jumping about 1.5 percent within six minutes and erasing earlier declines. Today’s session low was $1,146 at 8:35 a.m.

“A lot of buy stops were triggered at $1,167.40, and that brought in the upward momentum,” Phil Streible, a senior commodity broker at R.J. O’Brien & Associates in Chicago, said in a telephone interview. “Today’s run-up was largely technical, and a few investors bought gold after oil prices showed some strength.”

OPEC ministers have stepped up their diplomatic visits before the group’s Nov. 27 meeting, potentially seeking a consensus on how to react to oil prices that have plunged to a four-year low. Gold reached a five-year low of $1,130.40 on Nov. 7 as energy prices tumbled and U.S. equities climbed to a record.

David Fuller's view

Data in the article above is interesting and the price charts even more so.  Gold (weekly & daily) had a big upside key day reversal exactly a week ago on 7^th November.  Today, gold saw another big upward dynamic, so there is certainly some buying interest coming into the market other than just short covering.  Gold is still at the underside of its big trading range dating back to June 2013, so at minimum it needs to rally above the October high near $1257 to indicate a potentially significant downside failure.  If so, that will confirm that gold is regaining favour as a hard currency.

Silver (weekly & daily) also had a key day reversal on 7^th November, followed by a considerably bigger upward dynamic today.  Silver is high-beta gold so when it is clearly outperforming the yellow metal to the upside, that will be a clear indication the cyclical bear market in precious metals is over.  

Both WTI and Brent crude oil are clearly overextended to the downside ahead of the OPEC meeting on 27^th November.