Gold trades near highest level since September before ECB meets

[SINGAPORE] Gold traded near a four-month high before European Central Bank policy makers meet to discuss introducing new stimulus as holdings in the largest exchange-traded product expanded the most since 2010.

Bullion for immediate delivery rose and fell at least 0.2 per cent, and traded 0.4 per cent lower at US$1,275.09 an ounce at 3:50 pm in Singapore, according to Bloomberg generic pricing. The metal earlier climbed to US$1,283, the highest level since Sept 2, extending the biggest weekly gain since August 2013 as Switzerland's surprise currency move on Jan 15 roiled markets and boosted haven demand.

Gold's rally sent the metal's 14-day relative-strength index above the level of 70 that signals to some investors that prices may reverse. The Swiss National Bank ended the franc's cap against the euro before a meeting on Jan. 22 which may see the ECB announce asset purchases as Greece prepares for a Jan 25 election. Assets in the SPDR Gold Trust rose 1.9 per cent to 730.89 metric tons on Jan. 16, the biggest gain since May 2010.

"While gold tends to weaken with the euro, which is expected to fall further against the dollar as the ECB looks set to announce quantitative easing this week, gold also benefits from haven demand because of the uncertainties," Huang Wei, an analyst at Huatai Great Wall Futures Co, wrote in a note.

"We expect gold to be supported ahead of the elections in Greece and seasonal Lunar New Year demand."

Gold rose 4.7 per cent in the week to Jan. 16 in part as the Bloomberg Dollar Spot Index weakened for the first time in five weeks. A slump in commodity prices has raised speculation that the Federal Reserve may hold back from increasing its key rate, which has been kept near zero since 2008, as Jan 16 data showed inflation held below the central bank's 2 per cent target.

Gold for February delivery traded at US$1,275.10 an ounce on the Comex in New York from US$1,276.90 on Jan 16, when futures climbed to US$1,282.40, the highest level since Sept 2. US markets are closed Jan 19 for Martin Luther King Day.

Silver for immediate delivery declined 0.9 per cent to US$17.6322 an ounce, reversing an earlier advance to US$18.0075, the highest level since Sept 19. Prices surged 7.8 per cent in the week to Jan 16 for the biggest such gain since August 2013.

Spot platinum lost 0.4 per cent to US$1,262.45 an ounce, after prices rose on Jan 16 to US$1,272, the highest level since October. One ounce of platinum bought as few as 0.9882 ounces of gold on Jan 19, the least since April 2013.

Palladium fell 0.8 per cent to US$752 an ounce, after dropping on Jan 16 to US$746.10, the lowest price since October. The metal retreated 5.6 per cent in the week to Jan 16 for the biggest such loss since September.

BLOOMBERG