"The market attitude towards gold for most of January could be summed up in two words: cautious optimism," says the latest precious metals note from UBS.
"Investors were reluctant to add to positions aggressively as memories of the disappointment in Q4 lingered...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.
London Gold Market Report
from Ben Traynor
Friday 27 January 2012, 08:30 EST
WHOLESALE MARKET gold prices were headed for their biggest one-week rise since the start of December Friday lunchtime in London, climbing back through $1720 an ounce – a weekly gain of over 3%.
Silver prices meantime hovered around $33.60 per ounce – 4.2% up on last week's close – while other stocks and commodities were broadly flat and US Treasury bond prices slipped.
A day earlier, gold prices hit a 7-week high at $1730 per ounce before easing in Friday's Asian session.
"Lack of physical demand partly explains the inability of gold to make a sustained move beyond the $1730 level," says Standard bank commodities strategist Marc Ground, citing this week's Chinese Lunar New Year holiday as impacting demand from China, Singapore, Malaysia and Indonesia.
"[But] while slowing physical demand might provide some resistance during price rallies, we do not feel that it would be the cause of prices moving significantly lower."
"The [physical] market has been like a yo-yo," one Singapore dealer tells newswire Reuters.
"I think it's a good time to buy gold...but clients are all cautious. They are doing enough to roll their money but keeping it all for the possibility of buying back."
"Maybe it's better to wait until Monday," reckons another Singapore dealer.
"The Chinese market reopens and [we will] see whether they will buy some more gold or they will take profits."
Based on PM London Fix prices, gold by Friday lunchtime looked set for its biggest weekly gain since the week ended December 2 last year.
That week saw gold's biggest single-day Fix-to-Fix gain of recent months, when gold prices rose 2.5% on 30 November last year. Between that day's AM and PM Fix, six of the world's central banks announced a co-ordinated move lower the cost of Dollar funding for to the banking system.
This week meantime saw the Federal Reserve's Federal Open Market Committee begin publishing members' interest rate projections on Wednesday. The majority of FOMC members expect rates to remain at or below 1% until at least the end of 2014.
"The market attitude towards gold for most of January could be summed up in two words: cautious optimism," says the latest precious metals note from UBS.
"Investors were reluctant to add to positions aggressively as memories of the disappointment in Q4 lingered...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."
Between Wednesday's London PM Fix and Thursday's AM Fix – during which time the Fed made its announcement – gold prices gained 3.8%. Notwithstanding the New Year break, this was the biggest Fix-to-Fix gain since September 27.
That rise in gold prices coincided with reports that European policymakers were preparing a move to recapitalize the continent's banks – though the reported proposals were not adopted.
European leaders meantime are "just about to close a deal on private sector involvement between the Greek government and the private-sector community," European commissioner for economic and monetary affairs Olli Rehn said Friday, speaking at the World Economic Forum in Davos, Switzerland.
A Greek deal would pave the way for Greece's second bailout, agreed last October and worth €130 billion – without which Greece will not be able to repay €14.5 billion of maturing debt on March 20.
Iran – which was earlier this week hit by fresh sanctions on oil, diamond and gold dealing – has said that it may immediately halt its oil exports to Europe to pre-empt a European Union ban due to come into force July 1. Greece is thought to import around one third of its oil from Iran.
Two weeks after ratings agency Standard & Poor's downgraded them to junk status, yields on 10-Yeat Portuguese government bonds hit their highest levels since the crisis began Friday morning when they traded at 15.4% – almost double the yield on equivalent Irish debt.
Portugal's 5-Year bond yields breached 20%.
"It makes it impossible for Portugal to access debt markets in 2013," says JPMorgan rate strategist Nikolaos Panigirtzoglou.
"It's a country that still relies on the official sector in terms of financing its current account deficit and repayments and this makes it certain that we're going to get a second bailout for Portugal later this year."
"The market is asking whether Portugal is really just like Greece," adds Richard Batty, strategy director at Standard Life Investments.
A survey published this morning by British free newspaper Metro finds that 68% of British people believe the Euro will collapse.
French bank Societe Generale's latest Hedge Fund Watch also finds that hedge funds are shorting the single currency "like never before", the Financial Times Alphaville blog reports.
The Euro however rallied against the Dollar Friday morning, breaking back through $1.31.
Euro gold prices were flat Friday morning, holding above €42150 per kilo (€1310 per ounce) – still a 1.7% gain for the week.
Ben Traynor
BullionVault
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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
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