Gold Prices Rise on Safe-Haven Demand

London (Jan 25)  Gold prices were higher on Monday, buoyed by safe-haven demand as a falling oil price spurred investor jitters.

Spot gold was up 0.74% at $1,104.40 a troy ounce in midmorning European trade.

A fall in oil prices Monday erased gains in global stocks, even after Asian markets finished the trading day higher on expectations that central banks would provide fresh monetary stimulus. Brent crude oil was down 2.7% at $31.32 a barrel.

“Gold is behaving very much like it should behave,” said  Simona Gambarini, a commodities economist at Capital Economics in London.

After a long-awaited rise in interest rates by the U.S. Federal Reserve in December, gold’s role as a barometer for monetary policy has been reduced, allowing the metal to return to its more traditional role as a safe haven, Ms. Gambarini said. The precious metal typically struggles to compete with other assets as interest rates rise, because the metal doesn't offer interest on holdings.

Sentiment over the timing of a rate increase dominated price movements for the metal last year.

Such rate speculation had boosted the dollar, but on Monday a weaker greenback was supporting gold. The WSJ Dollar Index, which measures the dollar against a basket of other currencies, was down 0.04%. A weaker dollar makes the precious metal cheaper for investors who hold other currencies.

Still, despite global market volatility, the metal’s performance has been limited, according to  David Govett, head of precious metals at Marex Spectron. Gold has gained over 4% since the start of the new year. At the same time the price of Brent crude, the international benchmark, has lost 16%, the Stoxx Europe 600 is down almost 8% and corporate credit spreads have widened in most markets.

“I don’t think this is the start of a sustained bull move but rather a shifting of funds from equities into a perceived ‘safe haven’, albeit not a wonderfully performing one,” said Mr. Govett.

Physical demand ahead of Chinese New Year, which starts Feb. 8, will provide some price support, but this is likely to be limited, he added.

Among the other precious metals, spot silver was up 0.73% at $14.16 an ounce, spot platinum was up 1.46% at $843.7 and spot palladium was down 0.88% at $495.45 an ounce.

Source: WSJ