Gold posts highest weekly gain in six months as dollar weakens

Gold posted its highest weekly gain in six months, rising as much as 4 per cent to $1,320 a troy ounce on Friday, lifted by a weaker dollar and poor US economic data.

The price of the yellow metal has risen 9 per cent since the end of 2013, and posted increases for seven of the past eight weeks. The rebound is still modest in comparison with last year’s fall, when a sell-off by western investors caused gold to lose more than a quarter of its value.

Even so, the slow and steady recovery has surprised many in the market who expected the tapering of the US Federal Reserve’s vast bond-buying programme to weigh on prices.

“We never expected gold to perform this well,” said Walter de Wet, precious metals analyst at Standard Bank. “But our base case is still that the rally will fade, as it’s too soon for gold to have a sustainable recovery.”

Turmoil in emerging market currencies and concerns over the strength of the US economy have added lustre this year to gold, which is considered a haven asset. The latest boost came on Thursday, when data showed a fall in retail sales in the US in January and a weekly rise in the number of people claiming jobless benefits. At the same time, the dollar has weakened, which is positive for the gold price.

Demand in the world’s biggest retail market, China, has been strong but has tailed off this week as higher prices deterred buyers.

However, western investors are still purchasing. Overall, gold-backed exchange traded funds have recorded net outflows in 2014, thanks to selling in January, but the direction of money has changed in the past three weeks. On Thursday global ETF holdings of gold increased by 240,000 ounces, the biggest daily inflow since October 2012.

This is good news not just for investors but also the gold mining industry, which has been badly hit by the fall in the bullion price. This week Barrick Gold, Kinross Gold and Goldcorp all cut their reserve estimates, and revealed combined annual losses of $16bn.

Joni Teves, precious metals analyst at UBS, said bullion’s direction from here would depend largely on the western equity markets. Gold generally has a negative correlation with share prices in North America and Europe.

“In the short term, investors appear to be friendlier to gold, and further price increases can’t be ruled out,” said Ms Teves. “But looking further ahead, there still does not appear to be a compelling reason to get back into gold in the same way as before.”

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