UPDATE: Gold up, but improving flows don't convince all
MADRID (MarketWatch) -- Gold prices moved higher in electronic trading on Monday, building on gains seen last week amid signs of improving investment flows, though some analysts worried that those gains could short out if Chinese demand doesn't come through as expected.
Gold for February delivery (GCG4) rose $2.20, or 0.2%, to $1.254.10 an ounce, after gaining $11.70 to settle at $1,251.90 an ounce on Friday.
March silver (SIH4) added 1cent to $20.31 an ounce, adding to a gain of 1.3% on Friday and a 0.4% rise for the week.
In observance of the Martin Luther King Jr. holiday, trading floors were closed for Monday. Electronic trading for metals and energy futures ended at 1:15 p.m. Eastern and will reopen again at 6 p.m. Eastern.
Gold ETFs tracked by Bloomberg saw inflows of 7.4 tons on Friday, the highest daily amount since October 2012, said analysts at Commerzbank in a note on Monday. They added that much of that gain was driven by the SPDR Gold Trust (GLD).
"If this turns out to signal a trend reversal, it is likely to lend buoyancy to the gold price," said the Commerzbank analysts in a note. "The high outflows from the gold ETFs observed since the beginning of last year were one major reason for the weak gold price."
The analysts also noted that speculative financial investors are more optimistic about gold again. In the week ending Jan. 14, those investors expanded their net long positions for the third consecutive week to 28,300 contracts, the highest level in eight weeks.
There are some shaky signs to this potential rebound for gold, though.
"The metals continue to track the performance of the equity markets, which despite posting a green print on Friday, the breadth was limited to a few large cap stocks," said Peter Hug, global trading director at Kitco Metals. "Overall, the equity market is struggling to validate value and capital flows have again 'ebbed' into the metals."
Fawad Razaqzada, technical analyst with Forex.com, said in a note that after a 28% drop in gold last year, gold has probably been boosted by expectations cheaper prices will result in higher demand from China ahead of the Lunar New Year holidays, which begin Jan. 31.
Data on Chinese imports due midweek will be analyzed to determine the strength of that Chinese appetite.
Net long positions were also built up for other metals as well, noted Commerzbank, but also investors were looking ahead to a looming strike.
Platinum for April delivery (PLJ4) jumped $14.90, or 1%, to $1,469.00 an ounce. Members of South Africa's Association of Mineworkers and Construction Union (AMCU) over the weekend reportedly voted to strike this Thursday at the world's top platinum producer, Anglo American Platinum Ltd. , as well as Lonmin PLC (LNMIY) and Impala Platinum Holdings Ltd (IMPUY). .
"The strike action will see effects on palladium and rhodium supplies as well, while the AMCU has indicated to their members involved with gold production that they will also be given a strike mandate.," said Kitco's Hug. "The story has potentially profound issues in a market where the PGMs (platinum-group metals) are expected to be in supply deficits, pre-strike, but caution is urged as historically these actions have been short lived."
At the moment, noted Commerzbank, platinum costs over $200 per troy ounce over gold, and the last time the price gap was this wide was July 2011.
March palladium (PAH4) rose to $748.55 an ounce, while high-grade copper for March delivery (HGH4) was ended at $3.34 a pound, little changed on the day.