Precious metals held firm during early European trading on Monday, with gold on course for its third consecutive up day as physical demand returned to the market.
Spot gold was last at $1,590.70/1,591.50 per ounce, up $9.95, moving further away from last week’s six-month low around $1,535.
“For gold, following the sharp sell-off this month, it is currently recovering and unwinding these overextended downside conditions,” UBS analyst Joni Teves said.
“Gold’s struggle over the last five months has coincided with some slowing in the growth of global liquidity. Balance-sheet expansion among major central [banks] moderated in 2012, except at the Bank of England, where moderation only occurred towards the end of the year,” she added.
Trading remains dominated by concern over the outcome of Italian elections and Federal Reserve chairman Ben Bernanke’s Congressional testimony later this week.
Later in the week, a range of US budget cuts are also set to come into effect, which will kick in unless lawmakers reach a fresh deal to defer them.
“The gold market’s intense focus on the US economy and the Fed right now has made prices less sensitive to other factors,” Teves said.
Still, central bank gold buying continues – Russia has added 12.2 tonnes to its holdings and Kazakhstan 1.5 tonnes, according to newly released figures.
That developing nations with large current account surpluses, such as Russia, are adding to their official holdings has become a recurrent theme. These central banks use gold holdings to hedge against currency – predominantly dollar – risk.
In supportive data out of Asia earlier this morning, China’s February HSBC flash manufacturing PMI was at a four-month low of 50.4 against January’s 52.3, which had been the best for four months. But it was above the 50 level that separates expansion from contraction.
In wider markets, equities also appear to have firmed up. In Asia, the Nikkei is up nearly 2.5 percent at 11,662 and the Hang Seng up about 0.2 percent at 22,820. In Europe the FTSE and the Dax are firmer.
The euro is half a cent firmer at 1.324 against the dollar despite event risk from Italy.
Other commodities are mixed. Brent crude oil is 77 cents firmer at $115 per barrel and on the LMEthree-month copper is up $41.25 at $7,842.25 per tonne. Aluminum, however, set its lowest price this year at $2,029.25 earlier and was last still near this level at $2,032.25.
The rest of the precious metal complex all made gains of more than one percent. Platinum is up $17 at $1,623/1,628 per ounce, palladium gained $10 to $745/751 and silver rose 32 cents to $29.03/29.08.
By Eddie van der Walk