Gold struck a three-week high in early morning London trading when investors fled ailing oil prices and near-nine-year highs in the dollar.
The spot gold price was last at $1,212.20/1,213.00 per ounce, up $9.70 and not far from an earlier three-week high of $1,215 although the environment looks its bleakest in some time, with the dollar at 1.1920 against the euro and Brent crude oil susceptible to falling below $50 a barrel.
“The ability of gold to track higher in the face of ostensibly bearish moves in currencies and oil may mean that bullion investors are beginning to view EUR-USD and/or oil declines as disorderly and therefore prompting safe-haven buying in gold, or that the gold market is becoming inured to currency and commodity declines,” HSBC’s James Steel said.
Gold is benefitting from renewed safe-haven buying while the eurozone could face a crisis should Greece withdraw from the single currency should anti-austerity party Syriza gain a majority in snap elections set for January 25.
Physical support from China appears to be buoying the market, with premiums on the Shanghai Gold Exchange averaging $3.50-4.50 over spot on the au9999 kilobar contract, up considerably since the start of December.
The theme is expected to continue over the coming weeks in the run-up to the Lunar New Year, an auspicious time for consumers to buy gold.
“Physical demand is on the rise and from what we have seen from China over the last session if this continues it will play an integral supporting role,” MKS said in a note. “The key question will be whether this continues at higher levels like $1,220-40.”
In data today, the HSBC services PMI at 53.4 was better than last month’s 53.0, while in the eurozone the Spanish number also impressed at 54.3. But Italian services fell short at 49.4, the worst reading in 13 months for all-sector output growth.
The overall eurozone services PMI will not allay any fears about growth in the bloc, reaching its slowest in more than a year. The average reading over the final quarter at 51.5 was the worst since the third quarter of 2013 despite the December figure improving marginally to 51.4.
“Weakness was again evident in the big-three economies of Germany, France and Italy. German economic output posted a mild acceleration at yearend, but the rate of expansion was still lacklustre compared with earlier in 2014 as December saw inflows of new work fall for the second straight month,” Markit said.
There is increased speculation that the ECB will resort to quantitative easing imminently, a prospect that could have negative implications for the gold market because it will probably give the dollar another boost.
The final services PMI, ISM non-manufacturing PMI and factory orders are all due from the US later.
In other metals, the PGMs have yet to make any significant moves despite strong US car sales figures yesterday at 16.9 million, bringing the overall 2014 figure to the best since 2006.
Platinum was last at $1,214/1,219 per ounce, up $9, while palladium was $7 higher at $797/802.
Silver at $16.30/16.35 per ounce was up 20 cents and near session highs – physical buying also improved, which HSBC’s James Steel said could be due to increased industrial demand.
(Editing by Mark Shaw)
The post Gold price at 3-wk high, physical demand creates bullish theme appeared first on The Bullion Desk.
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