Gold’s Turbulent Start to the New Month

Gold has had a turbulent week, with prices struggling to gain any momentum following January’s 8% rally, the biggest monthly gain for the precious metal in three years. In the previous month, gold had posted strong gains on the back of uncertainty surrounding the euro zone region and falling oil prices. Towards the end of January, the European Central Bank announced that they plan to inject almost one trillion euros into the flagging economy and the first euro zone government openly opposed to bailout conditions imposed by the European Union, swept to victory in Greece.
The first few days of February have been poor for bullion as it has seen a sell off from the previous months close price of $1,283.59 to drop $27.76, or 2.2%, to a low of $1,255.83 per ounce. However, optimistic comments out of Greece – that the country will honour its obligation to repay a €240 billion bailout – has sharpened investors’ appetite for risky assets. Many traders have been fretting since the newly elected Syriza party took charge, until the recent proposal to swap Greek debts for growth-linked bonds eased concerns.

On Wednesday, appetite for the metal returned as China took a major step to boost bank lending and beef-up the economy by cutting the required amount of cash that banks set aside for reserves. The ratio was cut by 50 basis points to 19.5%, theoretically freeing up more money for the banks to pass on to businesses. Metal prices tend to rise on growth-boosting measures from China as the country, one of the world’s largest economies, is a major user of natural resources.

The commodity rose to post a session high of $1,272.18 yesterday before retreating in the US session to trade at $1,263.95 at 16:55 GMT. Gold has risen in spite of a stronger dollar, which was 0.4% higher against a basket of leading currencies, helped by a jump in US Treasury yields.
Investors will have more economic data to digest later in the week, which will culminate with Friday’s non-farm payrolls, usually considered an important gauge of the strength of the economy.

On Thursday morning, the yellow metal made further gains of around 0.2% to trade at around $1,271.81 at 06:33 GMT, adding to a 0.8% gain made on the Wednesday session. However, the precious metal is still trading in a narrow range and is unlikely to make significant gains before US jobs data is released on Friday 6th February.
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