Gold prices advance for a fourth straight day on Tuesday, hovering near a one-month high hit in the previous session. The main reasons for this latest positive development are weaker dollar and strong buying from China.
Gold has recovered nearly $160 from a three-year low of $1,180.71 an ounce, hit on June 28, after the US Federal Reserve said it would start phasing out its stimulus once it is sure the economy is strong enough to stand on its own.
At the time the statement prompted fears amongst market participants of imminent cuts to the Federal Reserve’s monthly bond purchases.
Spot gold rose 0.1 per cent to $1,336.84 by 0332 GMT, after technical buying pushed it past the $1,300 level on Monday. The yellow metal is on track for a more than 8 per cent jump in July, its biggest monthly rise in 1-1/2 years.
Traders are now more confident that the downside risk has subsided just a little bit. The message from the US Federal Reserve already outlived its momentum and actually it is not a novelty.
Demand from China remains strong and it is helping offset some of the losses from India where demand has fallen off. India, the world’s biggest consumer of gold, has imposed new rules on gold imports this year in an effort to reduce its current account deficit.
China, on the other hand, has been buying consistently, gold dealers have said, pointing to elevated premiums on the Shanghai Gold Exchange. Shanghai gold is about $20 an ounce more expensive than London spot prices, and gold futures were up more than 2 per cent on Tuesday.
Spot gold also drew support from a softer dollar that made assets priced in the greenback cheaper for holders of other currencies.
Despite this month’s gains, gold is still down 20 per cent for the year – its worst annual performance since 1997.
In June, market analysts from a number of investments banks slashed their 2013 gold and silver price forecasts.
However, gold price levels projections for the second half of 2013 suggest gold’s slide may have bottomed out for now after it hit its lowest in nearly three years last month.
Gold hit a one-month high of $1,338.91 on Monday as retail traders fearing a reversal of the recent downward price trend rushed to buy.
Looking forward, from here gold may advance in the short term to $1,460, although this is an optimistic projection for the summer season.