Gold climbs as European stocks retreat
London (Oct 20) Gold snapped two days of losses to rise on Monday as renewed weakness in European stocks boosted interest in the metal as an alternative asset, though a tentative recovery in risk appetite on other markets limited its gains.
The metal rebounded sharply after falling to its lowest in more than a year earlier this month, as jitters over growth prompted stock markets to sell off aggressively.
A bounce in equities after upbeat housing and consumer sentiment data on Friday helped take the shine off that recovery, but gold’s subsequent move lower proved temporary.
Spot gold was up 0.3% at $1,241.31 an ounce at 10.15am GMT, while US gold futures for April delivery were up $2.90/oz at $1,241.90.
"It’s very much what’s happening in the European equity markets, what’s happening with the dollar, that’s driving gold," Mitsubishi analyst Jonathan Butler said.
"Maybe there’s a re-rating of risk appetite going on ... the prospect of deflation in the eurozone, and also potentially in the United States, should support the long-term view on gold."
European stocks fell early on Monday, trimming lofty gains made in the previous session, with a profit warning from German business software maker SAP hitting shares in the tech sector. Stocks had risen overnight in Asia.
Sentiment in the broader financial markets showed some tentative signs of recovery, however.
Eurozone bond yields dipped as concerns about a slowdown in global growth eased. German 10-year bund yields, which set the standard for eurozone borrowing costs, fell one basis point to 0.85%, while Spanish, Italian and most other yields were down one to two basis points on the day.
Hedge funds lift bullish bets on gold funds and money managers increased their bullish futures and option bets in gold in the week up to October 14 after eight consecutive weekly declines, the Commodity Futures Trading Commission said on Friday.
The world’s largest bullion-backed exchange-traded fund, SPDR Gold Trust, has also been seeing an uptick in investments. Its holdings rose 1.5-metric-tonnes last week, its first weekly inflow since early September.
Demand from the leading centres of physical gold buying in Asia has been strong, but may be set to abate, MKS said in a note on monday.
"Physical demand has been a primary driver of the $70 move off the $1,182 lows a few weeks back," it said. "However, now that we are closing in on Diwali this week, Indian physical demand should moderate.
"Chinese physical demand has been steady but tepid, with outright demand on the modest side at these higher levels though metal is still being snapped up for loans," it added.
"Shanghai Gold Exchange premiums have backed off as a result, with the kilobar contract slipping into discount on occasion last week."
Spot platinum was up 1.2% at $1,267.90/oz, while spot palladium was up 0.5% at $754.30/oz.
Silver was up 0.7% at $17.35/oz. The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, held near a five-year high on Monday as silver prices underperformed.