Gold's London AM fix this morning was USD 1,643.50, GBP 1,074.60, and EUR 1,298.90 per ounce.
Friday's AM fix was USD 1,642.00, GBP 1,070.27, and EUR 1,281.71 per ounce.
Spot gold is again above the 200-day moving average near $1,638/oz. Gold prices have rallied 5% so far in 2012, with the euro-zone debt crisis and the growing tension between Iran and the west supporting gold's safe haven status.
Although gold had its largest drop in the last two weeks on Friday (-1.6%), it was 1.3% higher on the week and trading higher this morning. Many analysts feel that current sovereign, macroeconomic and geopolitical risks are not reflected in gold's price.
Cross Currency Table - Bloomberg
Friday's news of France's loss of its AAA rating has put the European Financial Stability Facility (EFSF) at risk. The euro-zone economy resembles a large ship sailing in rough seas since France funds 20% of the EFSF fund and eight other members were also downgraded.
Gold XAU-USD Rate - G14 Daily - Bloomberg
This will almost certainly lead to the EFSF's downgrade which would result in the fund too paying more to borrow as credit costs rise. There are icebergs lurking in increasingly murky euro-zone waters. The European downgrades were long expected and may have been priced in the markets. The risk of a non-orderly Greek default and of contagion in the euro zone remains and is not priced into markets. It would lead to the euro falling sharply against other fiat currencies and particularly against gold.
XAU-EUR Rate G14 Daily - Bloomberg
Gold has risen 7.4% in euro terms in the first two weeks of the year. Gold at EUR1,298/oz today is less than 4.7% from its record high in euros of EUR1,359/oz. (09/09/11). Given the scale of the crisis, new record highs in euro terms could be seen in the near future.
The situation with Iran is also likely to support gold prices. Crude oil prices remain near recent highs due to concerns over supply disruptions - after Iran warned Arab countries of consequences if they raised oil output to replace Iranian production facing international sanctions.
Gold jewelry demand in India has risen from 5% to 7% in 2011, and is projected to grow another 10% to 15% this year, the head of India's largest jewelry retailer confirmed on Sunday.
UBS saw an increase in physical gold demand last Friday to the highest so far in 2012, confirming that India is a buyer at these levels although Reuters report that demand was more lackluster in India overnight.
This strongly suggests that demand in India is more robust and less sensitive to higher prices than the bears have claimed. The Indian sub-continent continues to buy the dip.
For breaking news and commentary on financial markets and gold, follow us on Twitter.
Mark O'Byrne is executive director of Ireland-based GoldCore.
