Gold held close to a four-month high on Monday as uncertainty in global markets pushed investors towards the safe-haven metal, with holdings in the top bullion fund recording their biggest jump in nearly five years. A market rout after Switzerland unexpectedly abandoned a cap on the franc last week triggered strong bids for gold, often seen as an alternative investment to risky assets.
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, climbed 1.92 percent to 730.89 tonnes on Friday - the fund's biggest daily percentage jump since May 2010.
"Volatility in European currency markets encouraged further gold safe-haven demand," said ANZ analyst Victor Thianpiriya. "Gold physically-backed ETF inflows ... if sustained will likely support higher gold prices in the medium-term." Spot gold dipped 0.3 percent to $1,275.50 an ounce by 0740 GMT, but was still close to a four-month high of $1,281.50 reached on Friday.
The metal gained nearly 5 percent last week - its best week since August 2013. "Gold's rally was impressive in that it came despite surging US equity markets and a higher dollar," noted INTL FCStone analyst Edward Meir, commenting on Friday's move. Liquidity was set to be thin on Monday with the US markets closed for a holiday. But trading volatility is likely to increase through the week with major data and central bank policy meets on schedule.
The most awaited will be the European Central Bank's policy meeting on January 22, when investors believe it will launch a large-scale sovereign bond-buying program. The euro flirted with 11-year lows early on Monday as investors braced for the ECB to take its boldest steps yet to combat deflation and revive the euro zone economy. Traders will also be eyeing Chinese gross domestic product data on Tuesday and the Bank of Japan's policy meet later in the week for cues.
Investor confidence in the metal has been increasing recently. Speculators raised their net long position in gold for the third straight week ending January 13, US Commodity Futures Trading Commission data showed on Friday. Chart indicators for gold are also bullish. Gold is expected to test a resistance at $1,286, with a good chance of breaking above this level and rising more to $1,300, said Reuters technical analyst Wang Tao.
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