Many analysts expect another tough year for gold, with the dollar expected to gain further on expectations of higher US interest rates and a recovering economy. Spot gold rose 0.3 per cent to $1,185.20 an ounce by 0732 GMT, following an uptick in oil. Liquidity was thin in post-holiday trading, with Chinese and Japanese markets closed on Friday.
Brent and US crude futures edged higher on the first trading day of 2015 in Asia, supported by last week’s larger-than-expected fall in US crude stocks, although China’s lacklustre economic data capped the gains. Higher oil prices support gold as the metal is seen as a hedge against oil-led inflation.
Despite Friday’s gains, bullion is still down nearly 1 per cent for the week due to robust dollar. The dollar index, a measure of the greenback’s strength against a basket of six major currencies, hit its highest level in nearly nine years on Friday.
The index ended 2014 with its biggest annual increase since 1997, boosted by strong US economic data and expectations of higher interest rates. A strong dollar makes gold more expensive for holders of other currencies and also reduces its appeal as a hedge.
Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.25 per cent to 709.02 tonnes on Wednesday — a fresh six-year low.