Gold rises for third day after soft US GDP data

New York/London: Gold prices rose nearly one per cent on Friday, posting their biggest three-day rally since late October, after a report showing disappointing US economic growth boosted the metal's safe-haven appeal.

Bullion rose above $1,730 (Dh6,349) an ounce for the first time in seven weeks after data showed the US economy grew less than expected in the fourth quarter.

Gold's gain extended a rally ignited on Wednesday when the Federal Reserve said it would likely keep interest rates near zero until at least late 2014 and that it was ready to offer the economy additional stimulus.

The metal also got a boost from reports that the world's biggest hedge fund, Bridgewater Associates, was bullish on the precious metal as a hedge against inflation as governments print more money to reduce debt.

"With the softer-than-expected GDP reading it means that at a minimum we are going to have a highly accommodative monetary posture," said Mark Luschini, chief investment strategist of Janney Montgomery Scott, a broker-dealer with about $54 billion in assets under management.

"That should be supportive of the higher gold price, as it plays into the probability that QE3 [third quantitative easing] may be in the offing," Luschini said.

Spot gold was up 0.9 per cent at $1,735.96 an ounce late Friday. It was up around 5 per cent last week alone, its biggest one-week gain since the last week of October.

Trading volume

US gold futures for February delivery settled up $5.50 at $1,732.20 an ounce. Trading volume topped 300,000 lots, double its 30-day average, putting it on track to be one of the busiest sessions since September.

Technical buying also fuelled gains. Earlier in the week, gold broke above a key Fibonacci retracement level and the 100-day moving average. Gold rose above its 200-day MA last week.

Gold is on track to rise more than 10 per cent this month, its biggest monthly gain since August 2011.

Explaining gold's big gains last week, analysts pointed to the Federal Reserve's announcement that it would keep rates low.

"The Fed's announcement that it would keep its rates exceptionally low until 2014 was ... clearly not fully priced by the market," said BNP Paribas analyst Anne-Laure Tremblay.

"Real interest rates are likely to stay negative in the US in the next two years, which will be supportive of the gold price," Tremblay said.

Low interest rates benefit zero-yielding gold. Minimal borrowing costs also tend to fuel a gradual increase in commodity prices, supporting the metal's traditional role as a hedge against inflation.

Also helping gold was a sharply weaker dollar versus the euro and stronger Brent crude oil prices.

New catalyst

The debt crisis was a major driver of higher gold prices last year as investors bought the metal as insurance against a worsening outlook for the Eurozone. However, its rally stalled in late 2011 as the metal appeared to lose its appeal as a safe haven.

UBS analysts said the market attitude toward gold has largely been cautiously optimistic after the metal fell 10 per cent and briefly entered a bear market in the fourth quarter.

"A fresh catalyst was needed and we think the FOMC outcome on Wednesday fit the bill. More accommodative policy is a very good foundation for gold to build on the next move higher," the Swiss bank said in a note.

Silver rising

Among other precious metals, silver was up 1.3 per cent at $33.84 (Dh124.19) an ounce.

Silver is on track for a near 20 per cent rise in January, its biggest one-month gain since April 2011 when it rallied to a record $49.51 an ounce. Caution has dominated the market since then as the all-time high was followed by a sharp correction.

Spot platinum was up 0.7 per cent at $1,615.60 an ounce, while palladium was down 0.2 per cent at $686.43.

Platinum has outperformed palladium this month, climbing around 15 per cent for its biggest one-month rise since February 2008.

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