Gold rose in Europe on Friday and headed for its best weekly performance since early December after the Federal Reserve signalled a continuation of its ultra-loose monetary policy, pushing the dollar lower against the euro.
Spot gold was up 0.3 percent at $1,724.70 an ounce at 12:23 SA time, while US gold futures for February delivery were down $1.90 an ounce at $1,724.80. Spot prices have risen 10 percent this month, recouping December's hefty losses.
The precious metal surged towards $1,730 an ounce on Thursday after the Fed said it planned to keep interest rates on hold until at least 2014 and signalled it would be ready to take further measures to stimulate the economy.
“After the Fed chairman's vow to keep the rates low until late 2014, strong buying interest was visible,” said Pradeep Unni, senior analyst with Richcomm Global Services.
“Anxious investors have joined the fray of speculators who are now increasingly concerned by currency depreciation, as global central banks use easy monetary policies to flood markets with cash.”
The dollar eased 0.3 percent against the euro, further helping gold, which usually benefits from weakness in the US unit. The euro hit a five-week high on Thursday.
Oil prices also ticked higher as positive data from the United States boosted expectations of economic expansion gaining momentum in the world's top oil consumer.
Financial markets are awaiting US growth data later in the session. The US GDP report, due at 1330 GMT, is expected to show growth accelerated to a 3 percent rate in the fourth quarter, from 1.8 percent in the third. It will be watched for its impact on the dollar, a key determinant of gold prices.
The single currency is still under pressure from concerns over euro zone debt, as the markets await a breakthrough in Greek debt talks. Athens is in negotiations with private creditors to restructure its debt and needs a deal quickly to avert a default when a major bond redemption comes due in March.
NEW CATALYST
The debt crisis was a major driver of higher gold prices in 2011, as investors bought the metal as insurance against a worsening outlook for the euro zone. However, its rally stalled late last year as investors became acclimatised to the crisis.
“The market attitude towards gold for most of January could be summed up in two words: cautious optimism. Investors were reluctant to add to positions aggressively as memories of the disappointment in Q4 lingered,” said UBS in a note.
“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.”
Physical flows were light as key Asian markets, most notably China, remained absent for the Lunar New Year holiday.
Silver was up 0.8 percent at $33.66 an ounce.
Silver is on track for a near 20 percent 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 0.5 percent at $683.23 an ounce, while spot palladium was down 0.1 percent at $1,611 an ounce. Platinum has outperformed palladium this month, climbing 15 percent for its biggest one-month rise in nearly four years.
“Platinum group metals prices will continue to react to the perceived level of growth or lack of in the global economy,” said A1 Specialized Services & Supplies, the world's biggest PGMs recycler from autocatalysts, in its January note.
“But the downside in the platinum price may be limited by the slowing trend in South African primary production experienced over the past two years, a result of escalating cost pressures and more importantly, the rise in safety-related mine closures.” - Reuters