Gold hits 8-week high as investors bet on more gains

Gold prices firmed on Thursday, retreating from earlier eight-week highs above $1,750 an ounce as the dollar strengthened and equity markets eased, but firmly underpinned by strong investment appetite for the precious metal.

Spot gold was up 0.1 percent at $1,745.24 an ounce at 1025 GMT, while US.gold futures for February delivery eased 50 cents an ounce to $1,749. Spot prices earlier peaked at $1,753.20, their highest since December 8.

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Gold has risen nearly 12 percent this year, extending a correction from December’s lows after the Federal Reserve pledged to hold US interest rates at rock bottom for an extended period, keeping the dollar under pressure and the opportunity cost of holding non-interest bearing bullion low.

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“We have a new short-term uptrend,” said Andrey Kryuchenkov, an analyst at VTB Capital. “There is enough investor appetite, as it seems many who fear missing the next leg up in gold are ready to move in.

“I reckon most markets will take a breather today ahead of non-farm payrolls tomorrow, but it seems gold could well push to $1,760,” he added. “Small-scale buying is yet supportive.”

An early rise in stock markets and the euro ran out of steam on Thursday, with the single currency easing against the dollar as investors awaited a debt swap deal between heavily-indebted Greece and its private creditors.

Worries over the euro zone debt crisis drove gold sharply higher for much of last year even as they weighed on the euro. Towards the end of the year, however, the metal behaved more like a commodity, falling in line with equities as risk appetite retreated and suffering from strength in the dollar.

Underlying confidence in gold’s ability to push higher in a low interest rate environment has allowed it to rise this year even in times when other assets are under pressure.

“While gold’s 20-day rolling correlation with risk has jumped back into positive territory, the level continues to hover near the lower end of the range,” said UBS in a note.

“Gold appears in the process of convincing investors that its stint as a hybrid between a safe haven and a risk asset is coming to an end. The next test would be if we get any negative surprises out of Europe.”

“While downward pressure on EUR/USD would weigh on gold, the yellow metal’s ability to hold up better than other assets would be another signal that it is recovering its safe-haven characteristics,” it added. “The performance of gold priced in euros should also offer clues.”

Euro-priced gold was up 0.4 percent at 1,329.80 euros an ounce, and is up more than 10 percent this year.

CRISIS MODE

The chief executive of Newcrest Mining, the world’s No.3 gold producer, said he expects gold to trade between $1,500 and $2,500 an ounce in the next five years and retain its safe haven status for as long as the world’s financial system remains in crisis mode.

On the physical markets, demand in the world’s biggest gold consumer, India, edged higher as strength in the rupee made the precious metal cheaper for local buyers. Wedding season is underway in India, and will last until May.

The biggest global producer of gold, China, said its production of the metal rose to a record 360.95 tonnes last year. Its domestic demand far outstripped that figure, however.

Among other precious metals, silver was down 0.4 percent at $33.55 an ounce. Spot platinum was up 0.1 percent at $1,613.74 an ounce, while spot palladium was down 0.4 percent at $691.50 an ounce.

Platinum has outperformed gold so far this year, rising nearly 16 percent since end December. As well as benefiting from rising appetite for commodities, the metal has taken support from expectations that South African production could be disrupted this year by mine stoppages.

Price-positive news also filtered through from the demand side of the market. Most platinum and palladium is consumed by the car industry for use in catalytic converters.

“Platinum and palladium benefited yesterday from better than expected vehicle sales figures in the United States,” said Commerzbank in a note.

“On an annualised and seasonally adjusted basis 14.13 million vehicles were sold in January, almost 12 percent more than in the previous year.”

Reuters