Gold prices rose on Monday as expectations that the European Central Bank would step in to support the ailing euro pressured the dollar and on speculation that weak global growth would prompt further stimulus measures from central banks.
It stayed within a narrow range, however, as falls in some stock markets pointed to softer risk appetite among investors.
The metal extended last week's more than 1 percent gain, achieved largely on the back of hopes that the ECB would take further steps such as bond-buying to support the single currency, which has been battered this year by the euro zone debt crisis.
Spot gold was up 0.3 percent at $1,624.10 an ounce at 12:23 SA time, while US gold futures for August delivery were up $4.00 an ounce at $1,626.80. Gold remained within the $51 range in which it has traded since late July.
“We are still the this range-bound trading area, with the upper limit being $1,630,” LGT Capital Management analyst Bayram Dincer said. “Technically speaking, (a break of) $1,633 is really the trigger that is needed to push gold higher.”
He said talk of growth-boosting moves from China on Friday had triggered the latest move but that buyers were awaiting clearer signals on policy from other central banks including the ECB and Federal Reserve for a more decisive move.
The euro was up 0.3 percent against the dollar. The correlation between gold and the euro/dollar held near 0.6 on Monday, having averaged 0.53 so far this year, with 1 representing a perfect positive correlation.
Jitters over the global economy weighed on stock markets, with Japan the latest country to post weak second-quarter growth data on Monday, after readings from the United States, China and the UK showed either slowing or stalling expansion.
German Bund futures fell in thin trade, with investors reluctant to trade beyond recent ranges due to uncertainty over how policymakers will act against a weaker economic outlook and high Italian and Spanish borrowing costs.
Further steps to boost growth, such as quantitative easing - roughly money printing to buy bonds - would probably boost gold by increasing liquidity, keeping interest rates low and in the longer run fuelling fears of inflation.
“The gold market could move higher, or at least hold its ground, on the back of current speculation and building market sentiments towards future monetary easing/QE,” Marex Spectron said in a note.
CAUTIOUS NOTE
Investors remained cautious. Hedge funds and money managers cut their net long position in US gold futures and options in the week to Aug. 7, reducing bullish bets on doubts over more imminent monetary stimulus by the Federal Reserve and other central banks.
“Money managers ... are exercising restraint when it comes to gold,” Commerzbank said in a note. “Net long positions were slashed by 14 percent to 69,700 contracts in the week to 7 August and are thus only just above the 3-1/2 year low they hit at the end of July.”
“Net long positions in silver, on the other hand, have tripled in just two weeks. At a good 9,000 contracts, they have achieved their highest level for 14 weeks,” it added.
Silver was flat at $28.09 an ounce. Spot platinum was up 0.4 percent at $1,398 an ounce, while spot palladium was up 0.1 percent at $578.40 an ounce.
Platinum widened its discount to gold to more than $230 an ounce early on Monday, a historic level for a metal that has traditionally traded well above gold prices. Platinum has fallen in 16 out of the last 20 weeks and is virtually flat on the year after falling more than 20 percent in 2011.
The gold/platinum ratio, which measures the number of platinum ounces needed to buy an ounce of gold, hit its highest since 1985 on Monday at 1.16. In the intervening period, it has stood at an average 0.76.
Platinum, an autocatalyst metal most heavily used in diesel engines, has suffered from lower demand from European carmakers, its main consumer group. Even the threat of supply outages in major producer South Africa has failed to reverse its decline.
A worker was killed on Monday in renewed violence between rival unions at a South African mine operated by world number three platinum producer Lonmin , the head of the National Union of Mineworkers (NUM) said. - Reuters