Gold extends the rally attempting to regain haven appeal

The precious shiny yellow metal continues the bullish prints today and extends the gains into the European session ahead of key bond auctions and meetings in Europe. The metal is building on the gains recorded yesterday!

Gold COMEX February futures are currently hovering around $1645.20 per ounce rising by 0.84% from the opening of $1632.40 to set the high of $1648.00 and the low of $1630.80 per ounce. Meanwhile, spot gold is hovering around $1644.93 adding 0.72%.

Surely the debt crisis remains the predominant concern for investors that are gearing for more debt auctions starting with Germany today and to be followed by Spain and Italy tomorrow at the time the ECB is set to announce its policy decision.

The fears somehow eased with the leaders stepping up the efforts to contain the crisis. Merkel and Sarkozy voiced confidence with the start of the week over their progress towards the fiscal pact that is the only way to contain the crisis and also ensure that it is designed so that no member is to leave the euro, which is a good indicator for now.

Nevertheless, with equities and commodities trying to build on the upside gains and the dollar losing some strength, the metal is trying to break free of greenback's strength, that is likely to still remain strong in the coming period. The heavy liquidation at the end of 2011 and the association of the metal again with risky assets and sensitivity to the dollar is now the fact under test, whether the short covers can help the metal regain grounds and the appeal again as a hedge against uncertainty.

Eyes remain on Merkel and Monti's meeting today especially with new comments from Fitch that Italy is still not immune to a downgrade in the coming period, while the German debt auction will be watched to see how strong haven demand is and whether investors still opt safety over risk with the low yields Germany has to offer compared to peripherals.

Gold is surely benefiting from the current haze in the market as investors are at a loss indeed, is the heavy pessimism over or is it just a momentum buildup as they fear another disappointment at the coming January 30 EU Summit as they grew accustomed in the recent period.

Central banks are taking the loosening stance and that is building the base for gold gains especially with the gains across commodities and especially oil with the Iran tension fueling the gains.

We should also remember that the current situation of mixed reaction and uncertainty in market movements is a toxic mix for gold, where as we said good US data mixed with attempts for the euro to rise alongside equities and commodities has been met till now with daily record gains at the ECB deposits as banks are still defiant and fearful which is fueling again haven demand to gold that seems to be regaining the strong footing as the store of value!

Volatility will be seen more today and we need to keep an eye on Europe for sure as the debt auction and comments from Merkel and Monti might affect the market movement strongly.