The gold price steadily improved in Monday morning London trading on physical support from China in an otherwise unstable trading environment, with the dollar reaching a nine-year high against the euro.
Spot gold was last at $1,193.80/1,194.50 per ounce, up $4.60 on the pre-weekend close and trading in a $15 intraday range so far.
“Given the strength of the dollar, is it somewhat surprising the precious metals are as strong as they are but they generally seem content to range-trade above the November lows. We expect good underlying buying to continue to provide support,” FastMarkets analyst William Adams said.
Physical support from China is evident in the first full week of trading this year, with spot premiums on the Shanghai Gold Exchange remaining higher at around $4-5 over spot.
“The Chinese were firmly on the bid at the open the premium sitting around $4-5 over spot and forcing the gold price above $1,190. Good volume went through the SGE and kept the market buoyant for most of the day,” MKS said in a note.
“Seasonally China has good demand between now and their lunar new year which is in Feb, so we expect premiums to remain robust,” it added.
Gold has shrugged off the euro slumping to a reported 1.18605, a nine-year low against the dollar, while the dollar index is at a nine-year high.
The growing probability of quantitative easing (QE) in the eurozone continues to provide the dollar with the impetus to push higher.
“We are in technical preparations to adjust the size, speed and compositions of our measures in early 2015, should it become necessary to react to a too long period of low inflation. There is unanimity with the governing council on this,” ECB president Mario Draghi told German newspaper Handeslblatt last week.
Draghi is struggling to stoke inflation in the face of falling oil prices and slowing world economic growth outside of the US.
A move towards QE in the bloc could be highly detrimental to gold prices, almost certainly giving the dollar a further boost.
Investors continue to eye the Greek snap election later this month in what Prime Minister Antonis Samaris is describing as a vote that will ultimately determine the fate of the country’s membership of the euro.
According to Der Spiegel, German Chancellor Angel Merkel is ready to accept a Greek exit should anti-austerity Syriza party win.
The ECB has also already warned that a move against austerity could see economic sanctions imposed on the country, which may trigger another crisis.
In data today, Spanish unemployment change at -64,400 missed the forecast -72,000, while the Sentix investor confidence in the eurozone at 0.9 was better than expected.
The German preliminary CPI and US vehicle sales data are due later
In the other metals, silver at $16.03/16.07 per ounce was up 31 cents, while platinum at $1,206/1,211 was $9 higher and palladium gained $5 to $795/900.
(Editing by Mark Shaw)
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