Gold rose 1 percent to above $1,100 an ounce in Europe on Thursday as the dollar slipped against the euro, boosting interest in the precious metal as an alternative asset. Trading was thin in the run-up to the New Year holiday, with many market participants absent until January 4. Spot gold was bid at $1,103.60 an ounce at 0929 GMT.
Afshin Nabavi, head of trading at MKS Finance in Geneva, said moves in gold were being exaggerated by the thin market. "The leaders seem to be euro/dollar and the oil price," he said, adding that rising Middle East tensions could further lift crude oil and consequently gold.
The euro jumped more than 0.4 percent against the dollar on Thursday just as markets in London opened. Weakness in the US currency makes dollar-priced commodities cheaper for holders of other currencies. Even before these losses, the dollar index was set to end 2009 down about 4 percent.
PEAKS Gold prices have risen around a quarter this year, peaking at a record $1,226.10 an ounce in early December. They have benefited at various times from fears over financial market stability, dollar weakness and worries over inflation. Buying of investment products such gold exchange-traded funds has lent strong support to prices. Holdings of the world's largest gold-backed ETF, New York's SPDR Gold Trust, have risen 353 tonnes or 45 percent in the year to December 30.
Analysts say the outlook for prices in 2010 is uncertain, with much depending on the inflation outlook and US monetary policy. A rise in US interest rates could lift the dollar, and consequently weigh on gold. Precious metals house Heraeus said in a research note that it sees gold prices at an average $1,175 an ounce next year.
"The upward trend, despite the recent setback, should initially stay intact," it said. "Any rally should continue to be driven by investors, and they will prefer investing in physical metal." "A change in the overall positive attitude could happen once the low interest rates in the US and Europe change," it said. "Any bigger hike here is not to be expected before 2011."
Among other precious metals, palladium rose more than 2 percent to break through the $400 an ounce level for the first time since July 2008, with firm investment demand and gains in gold helping to lift prices. Palladium hit a peak of $400.50 and was later at $399.50 an ounce against $391, while platinum was at $1,469 against $1,454. Spot silver was bid at $17.03 an ounce against $16.79.
Investment demand for platinum and palladium through ETFs has represented a solid source of demand this year. Holdings of ETF Securities' London platinum-backed exchange-traded product have more than doubled this year to December 29, while those of its London palladium ETP have almost quadrupled.