The gold market over October was bound by steady physical demand on the downside and fund liquidation on the upside. This restricted the price to a narrow 12 dollars/oz range between 310 dollars/oz and 323 dollars/oz. The average for October was 317 dollars/oz, some 40 dollars/oz higher than at the beginning of the year. At the start last month, falling equity prices, political tensions in the Middle East, the escalating threat of all-out war between the US and Iraq overhung by a large net long position on COMEX helped support the gold price at the higher end of that month's trading range. But intermittent US dollar strengthening against other currencies capped any attempts to break above the key 325 dollars/oz level. But as political tensions diminished, with the threat of war against Iraq increasingly not deemed inevitable, equities and the US dollar improved, and the longs on COMEX bailed out. Gold fell to just above 315 dollars/oz. But a sharp move higher in short-term gold lease rates probably helped to arrest a farther in the fall in the price at that time. Short-term gold lease rates had fallen to zero. However, the removal of gold from deposit with certain commercial banks that were downgraded caused a short-term squeeze in the rates to around 0.27 percent on the one-month rate on 11 October. But once these positions were covered, rates fell back and have since returned to just above the zero level once again. Central banks will continue to keep the gold market liquid and, with the lack of any significant producer and speculator short selling, there is no fundamental reason why lease rates should tighten. After the brief lease rates furore in the market, the price fell through the 315 dollars/oz level as stocks and the US dollar continued to improve.
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