Fears of bleak Eurozone data drive gold higher

London: Gold edged higher on Wednesday to near a one to one-and-a-half-week high reached in the previous session on continued concerns about the Eurozone after disappointing data on factory output.

The metal hit its highest since February 28 at $1,598.20 (Dh5,870.18) on Tuesday, but the bounce ran out of steam due to pressure from an improving economic outlook in the United States and continued redemptions in gold-backed exchange-traded funds, analysts said.

Spot gold was up 0.3 per cent to $1,595.84 an ounce by 1109 GMT. The metal broke above the $1,560 and $1,585 range in which it had been confined since the start of March. The rally was fuelled by automatic buy stop orders triggered at preset levels between $1,586 and $1,587, traders said.

US gold futures for April delivery rose 0.2 per cent to $1,594.90.

“Gold gains when data shows that the Eurozone economy is still suffering,” Commerzbank commodity analyst Daniel Briesemann said.

“But yesterday’s attempt to regain the $1,600 level is still capped by the fact that a number of institutional investors appear still happy to withdraw their money from the market.”

The dollar was firmer against the euro after data showed that output at Eurozone factories fell more than expected in January and that production in France and Germany slipped, in the latest sign the bloc is struggling to emerge from recession.

On Tuesday comments of Germany’s Bundesbank that the Eurozone crisis was far from over and that inflationary risks are easing were seen as the initial trigger for the rally.

Cover short positions

Traders covered their short positions as they interpreted the remarks as an indicator of continued monetary easing, which favours gold as low interest rates encourage investors to put money into the non-interest-bearing assets.

Analysts said that although investors remained lukewarm towards gold, a push above $1,600 could force traders to close bearish positions to limit losses.

“The spec shorts are currently around 60 per cent higher than they were last year in May, when gold found a base at $1,525-26, which suggests we may have further to squeeze,” MKS Capital trader Alex Thorndike said.

European shares fell on Wednesday after a bond auction in Italy attracted less than expected demand and resulted in higher borrowing costs compared with previous auctions.

As a gauge of investor interest, holdings of SPDR Gold Trust, the world’s biggest gold-backed, exchange-traded fund, fell for a fourth straight session to 1,236.307 tonnes on March 12, its lowest since October 2011. The outflow this year of 114.51 tonnes has more than wiped out last year’s inflow of 96.25 tonnes.

With economic data sparse during the week, the next major event is US consumer inflation data on Friday, which is likely to provide some direction, analysts said.

Investors will be also watching a policy meeting of the Federal Reserve on March 19-20 to gauge the central bank’s attitude towards monetary stimulus.

An exit from the stimulus policy would deal a heavy blow to gold, which has thrived on demand from investors who buy gold to hedge against the inflationary risks of loose monetary policies.

Among other precious metals, spot silver was up 0.1 per cent to $29.14 an ounce, having hit a two-week high of $29.35 in the previous session.

Platinum fell 0.4 per cent to $1,589.24 and palladium fell 0.5 per cent to $766.72, off Friday’s peak at $784.50, its highest since September 2011.