Gold is battling heavy resistance at the key psychological level of $1,300 in Wednesday morning London trading but remains in positive territory in anticipation of unconventional monetary policy measures in the eurozone.
Spot gold was last at $1,300.00/1,300.80 per ounce, up $8.40 on Tuesday’s close but down slightly from five-month highs at $1,203.60 given heavy resistance at current levels.
The other precious metals were also higher – silver at $18.16/18.21 per cents was up 30 cents albeit down from an earlier four-month high of $18.34, platinum was up $9 at $1,279/1,284 and just short of a three-month high, as was palladium at $775/781, up $6.
ECB president Mario Draghi is expected to announce at a meeting on Thursday a full-blown quantitative easing (QE) programme of at least 500 billion euros in a bid to lift inflation closer to its target of 2.0 percent.
“The rallies in gold, silver and platinum look robust – we feel they are anticipating ECB QE and a pick-up in geopolitical risk over the Greek election and are reacting to the potential fall-out from low oil prices and recent currency turmoil,” FastMarkets analyst William dams said.
“The danger is this might be a ‘buy-the-rumour, sell-the-fact’ situation, at least with regard to ECB QE and the Greek election,” he added.
The finer details of the ECB announcement will be scrutinised for its possible effects on currencies and ultimately the gold price, particularly whether the programme is given a set timetable and how many of which bonds will be bought.
“The euro looks vulnerable ahead of Draghi announcing the finer detail of QE tomorrow but a lot is already priced in: if he opts for a clear one-year timeline, the move will be contained. But if he disregards German opposition and takes an open-ended approach, we are likely to see a much more dramatic weakening,” Jonathan Pryor, head of FX dealing at Investec, said.
The ‘dramatic’ drop in the bloc currency may immediately drag gold downwards, although the resurgence of safe-haven buying may continue to bolster gold prices as it has done since the start of the year. The euro is currently hovering near its lowest since 2003 at 1.1570 against the dollar.
“Gold sentiment is certainly improving,” UBS’ Edel Tully said. “The bigger question right now is whether or not gold’s journey north is sustainable. It is clear that gold is benefitting from safe haven demand.”
In other central banking news, the Bank of Japan opted to maintain QE and has increased its growth-supporting funding facility to 10 trillion yen from 7 trillion yen. The BoJ also said the country will see GDP growth of 2.1 percent in 2015, up 0.6 percentage points on previous indications, although inflation has been downwardly revised to 1.0 percent from 1.7 percent previously.
Out of China, strong physical buying ahead of the Lunar New Year and safe-haven buying are pushing gold prices higher – they are up around 10 percent for the year already. The SGE premium climbed to $4.50 at the close of Asian trade, MKS reported.
In data today, the market will await building permits and housing starts out of the US.
(Editing by Mark Shaw)
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