Gold rose 2.5 percent to a three-week high on Monday as caution ahead of key US data due later this week put pressure on the dollar, and amid speculation inflation may rise this year. Gold strength lifted other precious metals, with palladium climbing to its highest since July 2008, and platinum hitting a 16-month peak. Both are taking support from talk of new platinum- and palladium-backed exchange-traded funds.
Spot gold hit a high of $1,123.40 an ounce and was bid at $1,122.50 an ounce at 1446 GMT, against $1,096.35 late in New York on Friday. "Today's move is largely due to the currency markets," said Daniel Major, an analyst at RBS Global Banking & Markets. "Throughout commodities as a whole, index rebalancing is likely to bring a fair bit of volatility in the coming days, and that volatility may be reflected in gold," he added.
The precious metal closely tracks the dollar, with weakness in the unit boosting gold's appeal as an alternative asset, and making commodities cheaper for other currency holders. US gold futures for February delivery on the COMEX division of the New York Mercantile Exchange rose $26.50 to $1,122.70 an ounce.
Analysts say the outlook for the precious metal is bright as the new year gets underway, amid fears global monetary stimulus could lead to rising inflation later in 2010. "Further upside in gold is expected, with all the uncertainty still out there," said Calyon metals analyst Robin Bhar. "Governments are still stimulating their economies and may be forced to continue doing so going into the second half."
"That (could lead) to further devaluation of paper currencies, and more importantly, it may now give rise to inflation," he added. "We are seeing signs of that in the UK, and more so in the emerging economies like China." On the physical market, buying of gold exchange-traded funds was light at year-end, with the SPDR Gold Trust, the largest gold-backed ETF, reporting no change to its holdings on Friday, the last day of 2009.
Some signs emerged of recovering physical demand in India, the world's largest bullion consumer in 2008, after high prices curbed buying for much of last year. The Bombay Bullion Association said on Friday Indian gold imports rose to a provisional 32-35 tonnes in December from 3 tonnes a year before. The BBA also lifted its estimate of total 2009 Indian gold imports to 300-350 tonnes on Monday, from a previous estimate of a little over 200 tonnes.
Silver was at $17.36 an ounce against $16.84. Platinum hit a 16-month peak of $1,509.50 an ounce and was later at $1,508.50 against $1,465.50, while palladium was at $419.50 an ounce against $405.50, having earlier hit a 17-month high at $420.50.
Platinum group metals prices are benefiting from hopes for an economic recovery in 2010, which is likely to boost demand, and speculation platinum and palladium-backed exchange traded products will shortly be launched in the United States. "We note platinum outperformed gold and silver in the final weeks of the year against an improved industrial demand outlook and anticipation over increasing investor participation in 2010," Morgan Stanley said in a note.