Gold prices rose more than 1 percent on Monday, recovering from their lowest levels since February as the dollar and long-dated U.S. Treasury bond yields retreated from recent highs.
Gold prices ended the U.S. day session moderately higher Monday, on some perceived bargain-basement buying in the cash market and on short covering in the futures market. Prices Friday slumped to a 10-month low. The bears remain in firm overall near-term technical control of both gold and silver markets. February Comex gold was last up $12.60 an ounce at $1,193.60. March Comex silver was last up $0.116 at $16.67 an ounce.
Trading in gold and silver markets was fairly quiet today amid a lack of major news or reports coming out of Asia, Europe or the U.S.
“While financial markets might be starting to look for new drivers, politicians and policy makers remain very much in the driver’s seat,” Con Williams, a rural economist in Wellington at ANZ Bank New Zealand Ltd., said in a client note.
The other key "outside market" on Monday saw the U.S. dollar index slightly lower on a corrective pullback from recent strong gains that pushed the index to a 13-year high last week. The recent strong greenback has also been a major bearish element for the gold and silver markets.
Some analysts are warning investors to not count gold out just yet as financial markets prepare for Italy’s congressional reform referendum on Sunday.
While $1,200 an ounce is still elusive for the gold market, Ole Hansen, head of commodity strategy at Saxo Bank, said that the Italian referendum has potential to create more geopolitical uncertainty as the government is expected to lose the referendum, which proposed to reshape the Senate to replace 315 elected senators with 100 appointed representatives
According to the latest polls, the “No” side currently has an eight point lead over the “Yes” camp, leading 41% to 34%.Prime Minister Matteo Renzi, who called for the referendum, has said that he would step down if the vote failed to pass.
“The event risk is supporting gold. The $1,200 to $1,203 is the key area to watch,” he said.
Bill Baruch, senior market strategist at iiTrader, said that he could see some potential safe-haven demand ahead of Sunday’s vote as a ‘no’ victory could impact the country’s major financial institutions.
The Shanghai Gold Exchange premium soared to multi-year highs overnight, with Commerzbank citing recent news reports that China’s government may restrict the number of import licenses and MKS (Switzerland) S.A. reporting that dollar weakness also boosted the appeal of gold. “The early-session USD weakness gave gold a boost right from the open, surging through the Friday high leading into the Shanghai session, before taking a further leg higher courtesy of Chinese interest as the SGE premium continued to trade elevated,” MKS says. “After opening at an onshore premium of around $22 over loco London gold, interest drove the premium as high as $28 and with it spot gold to USD $1,197.70, before participants took the opportunity to buy the USD and cap any further gains.” Last week, Reuters reported that the premium hit a three-year high on worries about a supply shortage tied to Beijing’s efforts to restrict import licenses. “According to industry sources, the Chinese government has reduced the number of import licenses,” Commerzbank says. “According to Thomson Reuters, this drove premiums in China as compared to world market prices to their highest level in nearly three years at the end of last week (roughly $25 per troy ounce). Premiums could also remain high for the time being given that Chinese gold traders and jewelry manufacturers are likely to require large quantities of gold in the run-up to the Chinese New Year festival at the end of January.”
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