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Wed 8 Feb 2017 07:43 PM

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Gold hits 3-month peak on heightened political risk

Political worries spur safe-haven demand for bullion

Gold hits 3-month peak on heightened political risk
Tourists look at gold products at Dubai Gold Souk in Dubai (Getty Images)

Gold rallied on Wednesday, hitting a fresh three month
peak as political risks posed by elections in Europe and worries over US
President Donald Trump's policies stoked safe haven demand.

Investors are concerned about the strong showing in the French
presidential race of far-right candidate Marine Le Pen, who has promised to
take France out of the euro zone and to hold a referendum on European Union

The euro recovered after falling against the dollar on political
risks, as the single currency gained from investors' wariness over Trump's
protectionism and immigration policy and his hints that he would prefer a
weaker dollar.

"There's underlying demand for gold as a hedge
against political uncertainties on both sides of the Atlantic," said Ole Hanson,
head of commodity strategy at Saxo Bank.

"Retracements have been quite shallow the past
couple of weeks, especially the signal that gold wasn't going down when the
dollar started going up," he added.

Spot gold rose 0.7 percent to $1,241.70 per ounce by 1508
GMT, having earlier touched its highest since Nov. 11 at $1,244.67.

US gold futures rose 0.6 percent to $1,243.80 an ounce. Indicating
heightened worries over the French elections, the gap between French 10-year
government bond yields and their low-risk German equivalents was at its widest
since November


"Gold prices will continue to rise until
mid-February on uncertainties in the US and Europe. But once January CPI data is
released, it will give an idea about the possibility of a rate hike in
March," said Jiang Shu, chief analyst at Shandong Gold Group.

Holdings of SPDR Gold Trust, the world's largest gold-backed
exchange-traded fund, climbed 1.01 percent to 826.95 tonnes on Tuesday from
Monday. Holdings rose for a fifth straight session.  

The rise in holdings, along with recent data from US Commodity
Futures Trading Commission (CFTC), show an increase in long positions for
managed money and a decrease in short holders, MKS PAMP Group trader Alex
Thorndike said.

Spot silver rose 0.4 percent to $17.80, after marking its
highest since Nov. 11 at $17.87. Platinum rose 1 percent to $1,014.80, after
touching its highest since Nov. 9 at $1,018.60.

Upside potential for platinum is limited due to an
envisaged decline in investment demand from Japan, Commerzbank said in a report.

"Platinum should be lent buoyancy primarily by the
rise in the gold price that we are forecasting," it said. Palladium rose
0.6 percent to $765.75.

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