Gold rebounded from a two-day loss on Friday as a sharp slowing in US fourth-quarter economic growth boosted the precious metal's safe-haven value, helping it post its best monthly gain in three years in January. A powerful rally in oil prices late on Friday added to gold's gains as some investors concerned about potential inflation bought into the yellow metal.
Gold could remain strong in the near term from worries about European instability even as the dollar remained strong, traders said. Spot gold posted an 8 percent gain for the month, its most since January 2012, helped by the Swiss National Bank's decision this month to scrap the franc's peg to the euro. The European Central Bank has also said it would pump billions into the economy.
"We've seen these sentiment-driven recoveries in the gold market a couple of times in the past two years," Julius Baer analyst Carsten Menke said, citing last rally's from the Ukraine crisis as an example, and expecting more support factors this year. On Friday, spot gold rose 2 percent to reach $1,281 an ounce by 3:20 pm ET (2020 GMT), after a session peak at $1,283.
US gold futures' benchmark contract, February, settled up $23.90, or 2 percent, at the day's high of $1,278.50 an ounce. In post-settlement trade, it rose to $1,281, matching the high in the spot market, after the rally in oil. Gold prices ran up after the US Commerce Department reported that US gross domestic product expanded at a 2.6 percent annual pace in the fourth quarter, just about half of the third quarter's 5 percent rate.
"The GDP number basically removed any resistance to the buying that came in," said George Gero, a gold analyst at RBC Capital Markets Global Futures in New York. Last week, gold hit a five-month high but worries that the run above $1,300 an ounce had gone too far prompted some investors to cash in gains. On Thursday, spot gold fell more than 2 percent, knocking the entire precious metals complex lower.
Expectations that the Federal Reserve might hike rates sometime this year, the first time in nearly a decade, was a longer-term worry for gold bugs, analysts said. Elsewhere in precious metals, silver was up 1.7 percent at $17.20 an ounce. Spot platinum rose 1.2 percent to $1,235.25 an ounce, while spot palladium slipped 0.1 percent to $771.52.