Gold above $1,300 on high stimulus expected from ECB

London (Jan 21)  Gold prices on the market has moved up to a four month high gaining safe heaven status. 0n the international market, gold went up to $1300 per ounce on the expectation of stimulus program which the European Central Bank which is expected to be announced on Thursday, thus driving investors to invest in gold as it is a safe haven asset.

Internationally, outcome of the Greece elections is also awaited and has also caused safe haven demand of gold to increase. The Greece election in on the weekend. A few years ago when the Greece exited Eurozone, gold had reached to new highs. Even there is safe-haven buying on the back of the economic fallout of lower crude oil prices. On the Mumbai spot market, gold closed at Rs. 28150 per 10 grams, up 4% in 10 days and silver has crossed Rs 40,000 per kilogram mark.

Nic Brown, Head of Commodities Research at Natixis said, "We would attribute much of the recent rise in gold prices to the eagerly anticipated QE from the ECB. Given how much of the European bond market is now sinking into negative yield, a safe-have asset such as gold that pays a relatively generous zero yield is becoming increasingly attractive for European asset managers."

When oil prices were high, some of OPEC's fiscal surpluses have been invested in gold. However, that money not coming to gold, despite that prices are rising. With crude prices where they are now, oil exporting countries are now running deficits rather than surpluses, so they have no money available to invest in assets such as gold.

Demand however, for the yellow metal has remained weak in India despite wedding season has begun again after a pause. Sharp upturn in gold prices in last couple of week ahead of marriage season has caused buyers to stay away from the market.

"Demand for bullion has taken a hit due to a sudden increase in the price. Gold is currently selling at a discount due to weak demand on the Mumbai spot market," said Suresh Hundiya, a Mumbai based bullion trader.

For jewelers, who compare demand year on year see demand higher as last year around this time marriage season was short. "Demand this year is higher compared to last year by 15%," said Rajiv Popley director Popley Group.

Analysts say that gold will continue its upward rally due to concerns of the European economy which will cause prices to increase in the short term.

"In the short term, the price of gold could touch $1340 per ounce," said Sugandha Sachdeva, AVP at Religare Commodities.

Naveen Mathur, associate director of commodities and currencies at Angel Broking said that gold will continue to increase in the short term however, after the ECB meeting there is a possibility of the euro depreciating against the dollar which may also exert downward pressure on bullion prices.

Source: BusinessStandard