Gold edges off four-month high but haven appeal lends support

London (Jan 19)   Gold edged lower on Monday as investors cashed in some of the previous week’s hefty gains, but prices remained near four-month highs as volatility in the wider markets boosted the metal’s appeal as a haven from risk.

A market rout after Switzerland unexpectedly abandoned a cap on the franc last week triggered strong bids for gold, often seen as an alternative to risky assets. That sent prices to their highest since September at $1,281.50 on Friday.

While it retreated on Monday, it remained supported near that peak as the market braced for further volatility in a critical week in the eurozone, traders said.

Expectations are high that the European Central Bank will unveil a bond-buying stimulus package at a policy meeting on Thursday, while the anti-bailout party Syriza maintains a lead in the polls going into Greece’s general election on Sunday.

Spot gold was down 0.3% at $1,276.10 an ounce at 10.15am GMT, while US gold futures for February delivery were down 70c/oz at $1,276.20.

"There’s a little bit of profit taking that’s come in, and a little bit of physical selling — nothing huge yet, but it’s the first time we’ve seen this level for a while, so people are a bit excited," MKS’s head of trading, Afshin Nabavi, said.

"But overall, gold is going the right way to reach $1,300, and if we can reach that, we can go much, much higher," he said.

"With the recent events in Switzerland, and the feeling that Europe may want to start quantitative easing on Thursday, gold has returned to being a safe haven."

Holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, climbed 13.7-tonnes to 730.89-tonnes on Friday, its biggest one-day inflow in nearly three-and-a-half years.

Speculators raised their net long position in gold for the third straight week ending January 13, US Commodity Futures Trading Commission data showed on Friday.

Liquidity was set to be thin on Monday with the US markets closed for a holiday.

Silver was down 0.7% at $17.61/oz, while platinum was down 0.4% at $1,258.44/oz and palladium was up 1.2% at $759.93/oz.

Palladium bucked the trend of the other precious metals last week to fall 6.1%, its biggest weekly drop since June 2013.

"Palladium ... is suffering with its strong links to the industrial complex, producer selling and fund liquidation," Marex Spectron said in a note.