Gold rose above $1,420 an ounce in Europe on Monday, within 1 percent of its record high, and silver and palladium hit multi-year peaks, driven by pent-up demand on the first trading day of 2011.
While a firm dollar is limiting gains, expectations for more bad news on euro zone debt, concerns over potential inflation in developing economies and an increased focus on the U.S. deficit are set to maintain surging demand for gold, analysts said.
Pradeep Unni, senior analyst at Richcomm Global Services in Dubai, said fresh highs in gold were “likely” this year after the metal was becalmed over the Christmas holidays, with an initial target seen at $1,455-$1,480.
“The fundamentals are driving the price and those fundamentals remain `fear' driven,” he said.
“Gold (steps) into the New Year with all its current fundamentals intact.... sovereign debt risk, macro uncertainty, concerns over currency stability, medium-term inflation fears as the U.S. Federal Reserve implements Quantitative Easing II, geopolitical tensions and low interest rates.”
Spot gold was bid at $1,420.40 an ounce at 12:35 SA time, against $1,419.45 late in New York on Friday. The precious metal hit a record $1,430.95 an ounce in December. European trade is expected to remain quiet, with London still on holiday.
U.S. gold futures for February delivery eased 40 cents an ounce to $1,421.00.
While gold was little changed in early trade on Monday, U.S. data due later in the session - November construction spending and December ISM non-manufacturing numbers at 17:00 SA time - may influence trade later in the session.
EURO SLIPS
The euro fell 0.5 percent against the dollar early on the first trading day of 2011, reversing year-end gains on persistent concerns about euro zone debt.
These worries can work both ways for gold. A weaker euro, and consequently stronger dollar, typically pressures gold prices, but concerns over sovereign debt are set to support demand for the metal as a haven from risk.
“(We look) for the gold market to start out 2011 on a strong note,” said MF Global in an end-of-year report. “Support may come from a resumption of investment inflows and a renewed focus on European sovereign debt issues.
“Background support will be offered by quantitative ease, and improved (jewellery) demand,” it added. “Negative factors will linger in the background as well, but should be shelved in the midst of fresh investment this week.”
The strong inverse relationship between gold and the dollar weakened to such an extent last year that gold prices managed to rise nearly 30 percent at the same time that the dollar rose more than 6.5 percent against the euro.
Among other precious metals, silver rose to its highest since 1980 at $31.06 an ounce, as investors continued to pick up the metal as a cheaper proxy for gold. It was later bid at $31.04 an ounce against $30.86.
“At over $31 a troy ounce at the beginning of the new year, silver... continues its high-altitude flight,” said Commerzbank in a note.
“Ongoing strong demand, e.g. for silver ETFs, could push the price up further. Alone the world's largest silver ETF, iShares Silver Trust, increased its holdings last year by 15 percent or 1,429 to 10,922 tons.”
Platinum was at $1,774.24 an ounce against $1,767.50 and palladium at $800.03 against $799.50, having earlier touched its highest since March 2001 at $803 an ounce.
Palladium and silver were among the best-performing precious metals last year, up 97 percent and 83 percent respectively. Autocatalyst metal palladium is seen as the surer bet for 2011, however, on expectations its market balance will tighten. - Reuters