Gold and silver have hit fresh multi-month highs on the European spot market, although analysts say there are near-term risks to further gains.
Gold was trading at its highest since the end of October, while silver rose to levels not seen since early November, with strength found from Chinese demand, the reversal of bets on lower prices — or short-covering — and a weaker US dollar.
Spot gold was 0.7 per cent higher on the day at $US1,327.70 a troy ounce in afternoon European trade onMonday, while silver was up 1.8 per cent at $US21.830 an ounce.
Gold for April delivery closed $US10.30 higher on the Comex.
“Gold and silver are beginning the new week of trading in the same way that they ended the old one: with price gains,” said analysts at Commerzbank, adding that “sentiment among investors has improved noticeably of late.”
Still, some analysts warned that gold’s rapid ascent may leave the metal vulnerable to bouts of opportunistic selling.
“Much like Icarus, you do question how much higher it can go before things start to fall apart,” said Alastair McCaig, a market analyst at IG.
“A 12 per cent rally since the closing days of 2013 will no doubt only increase the temptation for traders to take some profits off the table.”
Analysts at Barclays said they expect short-covering and Chinese demand to lose momentum in the forthcoming sessions. Similarly, the bank expects the US dollar to present a hurdle for bullion as the year unfolds, tipping a first quarter average gold price of $US1,220 per ounce and a 2014 average price of $US1,205 per ounce.
The latest Federal Open Market Committee meeting minutes will be released Wednesday, which will likely drive bullion price activity. The Fed has started to taper back its economic stimulus program, which had supported demand for gold and silver as a hedge against associated inflationary risks.