Gold price holds above $1,200/oz but headwinds persist

Otmane El Rhazi from The Bullion Desk.

The gold price is fairly steady during Wednesday morning sessions, and while it is down on the previous day’s close, it is managing to hold up fairly well, despite persistent headwinds.

Spot gold was last at $1,212.80/1,213.70 per ounce, a $3.20 decline on the previous day’s close and coming down from yesterday’s high of $1,222.50, as profit taking and a stronger dollar set in.

The yellow metal has found support from its status as a safe-haven asset as concerns that Greece will exit the Eurozone build.

“Political uncertainty in Greece ahead of that country’s elections on the 25 [January] is also turning out to be a convenient bullish story for gold, as the thinking is that if the Greeks decide to elect the opposition party, they will be exiting the Euro,” said INTL FCStone analyst Edward Meir.

But, he warned that as the polls continue to narrow it is “therefore premature to assume a change in the status quo.”

Still, headwinds persist in the form of a strong dollar and oil prices – US light crude oil was last around $47.30 – five-and-a-half-year lows.

“The precious metals have rallied in recent days mainly on safe-haven buying we feel, but they are no doubt feeling a headwind from weaker oil prices and the stronger dollar,” said FastMarkets analyst William Adams.

“As such, we would be wary of expecting the rallies going too far and would not be surprised if former resistance levels prove effective. That is unless we get more risk aversion in the broader markets that could boost safe-haven buying further,” he said.

The dollar is holdiong around five-and-a-half year highs against the euro – it was last at $1.1888 and remains susceptible to further movements.

“With the steep collapse in crude oil, Eurozone inflation may well fall below zero. This increases the likelihood that the ECB will launch sovereign QE when it meets on January 22. Thus, we can expect the euro/dollar to continue its descent as the ECB starts to expand its balance sheet,” said Credit Suisse.

Today, US FOMC minutes will be watched closely today for further signals of a timeline as to when interest rates will be increased.

In data, German retail sales were positive at 1.0 percent. Later, there will be German unemployment change, Italian monthly unemployment rate, EU retail PMI, EU CPI flash estimate, EU core CPI flash estimate, and EU unemployment rate.

From the US, ADP non-farm employment change, trade balance and crude oil inventories are all scheduled

In others, silver tracked gold lower, albeit marginally at $16.39/16.44 against the previous close of $16.43. Platinum at $1,215/1,220 was 41 lower and palladium fell $3 at $797/802.

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