Gold jumps as stocks, dollar drop, Mid East tensions flare

Holdings in gold exchange-traded products declined 2.56 metric tonnes to 1,463.9 tonnes on Friday, near the lowest in more than six years, according to data compiled by Bloomberg.

Silver prices initially followed gold bullion higher on Monday, but failed to hold a 4-session high at $14.20 per ounce, easing back to trade 1.3% higher for the day at $14.04 by mid-afternoon in London.

Gold, traditionally seen as a store of value during political turmoil, climbed after Saudi Arabia cut ties with Iran, a day after its embassy in Tehran was attacked to protest the Saudi execution of a prominent Shiite cleric.

Risky assets came under pressure on Monday after the Chinese equity rout spread to the rest of the world following dismal economic data from China. A reading below 50 indicates economic contraction.

Asian shares tumbled, where trading on Chinese stocks was suspended after dropping almost 7 percent. The metal faces another tough year in 2016 as US interest rates are expected to rise and the dollar strengthen, with analysts predicting further price drops.

“The key factor for gold remains the strong United States dollar and that ultimately trumps all other issues including the economy and the geopolitics”, said Ross Norman, chief executive of bullion broker Sharps Pixley. We expect a gradual improvement in spec positioning after it reached a bearish extreme.

India gold prices also jumped as the Rupee fell hard amidst fresh fighting at the Pathankot Air Force base in Punjab, near the Pakistan border, gaining 2.3% to reach 2-month highs at spot exchange rates and offered above INR 25,900 per 10 grams by dealers in Kolkata.

Gold lost around 10% a year ago, recording its third annual loss, on predictions of Fed interest rate increase.

In US data announced Monday, final manufacturing PMI for December was 51.2, above the forecast of 51.1, while the ISM manufacturing PMI fared worse at 48.2, below market consensus of 49.1.

China’s Shanghai Composite Index took a drubbing again in early trading on January 5, falling by 3 percent before recovering some by midday.

March silver gained 15 cents, or 1.1%, to trade at $13.95 an ounce.