LONDON—The spot price of gold is higher in Europe Monday after Chinese buyers returned to the market overnight following a week-long holiday, and industry participants expect the yellow metal to extend its gains as physical demand for bullion escalates.
Mid morning, spot gold was at $1,663.40 a troy ounce, compared with bids of $1638.70 late Friday in New York.
While physical demand, particularly from Asian participants, has been firm, a weak dollar is playing a significant role in gold's rise, traders say.
A softer greenback—the currency has been falling against the euro on news that France and Germany are working on a plan to backstop the banks, and ensure that Greece remains in the common-currency area—tends to boost demand for the metal, which is priced in dollars. When the dollar weakens, gold appears cheaper to buyers using other currencies.
In euro terms, spot gold was trading only slightly higher at €1,225.94 per ounce.
Analysts and traders closely watch the euro-gold trade as an indicator of trends in the metal itself, rather than external factors and movements in the dollar.
"The battle lines are now being drawn and although we are still quite bullish of gold in terms of the European currencies, we really do need to see gold trade upward through €1,260 per ounce sooner rather than later," said Dennis Gartman, publisher of The Gartman Letter.
Still, market participants expect physical demand, a key support to the market at current prices, to accelerate further this week following the return of China from the Golden Week holiday, and as Indian demand grows ahead of the Diwali festival, one of the most significant gold-buying periods for the country, the world's largest consumer of the precious metal.
Trading "could still be quieter than normal" in the session ahead, though, with U.S. participants absent for Columbus Day, a London-based trader said.
Other precious metals were higher as well Monday, gaining in line with other dollar-denominated commodities. Mid morning, spot silver was at $32.010 per ounce, compared with bids of $31.27 on Friday in New York, while spot platinum was at $1,520 an ounce, compared with bids of $1494. Spot palladium rose to $612.25 per ounce from a bid level of $586. Base metals on the London Metal Exchange were also higher.
