Gold Advances On Strong Inflows

Gold gained in the Asian session as the new month began adding almost $6 to trade at 1122.10. Silver added 42 points to 14.285 and platinum was flat at 872.45. A reversal in oil prices put a bit of stress on the markets with WTI giving up 68 cents to 32.94. Although weak Chinese manufacturing PMI put stress back into the marketplace.

Business in China’s manufacturing sector contracted at its fastest pace in almost three-and-a-half years in January, missing market expectations, an official survey showed on Monday. The official Purchasing Managers’ Index stood at 49.4 in January, compared with the previous month’s reading of 49.7 and below the 50-point mark that separates growth from contraction on a monthly basis. It is the weakest index reading since August 2012. Analysts polled by Reuters predicted a reading of 49.6. The PMI marks the sixth consecutive month of factory activity contraction, underlining a weak start for the year for a manufacturing complex under severe pressure from falling prices and overcapacity in key sectors including steel and energy.

Last week,  gold prices rose by 1.8 percent to close at $1117.6 per ounce. Prices rose to a 12-week high after the U.S. Federal Reserve said it was “closely monitoring” global economic and financial developments, and held interest rates steady as expected.

The central bank removed a previous reference from its statement to the risks of the economic outlook being balanced and said it was weighing how the global economy and financial markets could affect the outlook. After a 10 percent drop in 2015, its third year of losses, gold has so far benefited from turmoil in equity markets and worries about an economic slowdown in China, which contributed to lift prices by 6 percent this month.

Further, data showed China’s net gold imports for December via main conduit Hong Kong surged to the highest in more than two years. Also, the International Monetary Fund last week cut its global growth forecasts for the third time in less than a year after China’s economy grew at its slowest rate in a quarter of a century in 2015.

Gold advanced extending gains after ending January with its biggest monthly gain in a year, amid a softer dollar and uncertainty over the global economy. Inflows into the world’s largest gold-backed exchange-traded fund were also the strongest in a year last month as investors moved into gold due to volatility in other assets including equities.

Gold prices are expected to give up gains as the European markets close. Bullion prices are likely to trade lower as Bank of Japan unexpectedly announced introducing a negative interest rate policy, providing a new lease of life to markets after the ECB. Also, physical in China remains low ahead of the Lunar New Year holiday which begins on February 8.