Gold Bullion hovered above $1670 per ounce Wednesday morning, broadly in line with where it started the week, while stocks and commodities were also little changed and the Euro eased against the Dollar ahead of tomorrow's European Central Bank interest rate decision.
Gold has failed to break through the $1700 an ounce barrier since falling through the level in December. Over the same period, most stock markets have rallied. The S&P 500 had its best January since 1997, touching a new five-year high, while the FTSE 100 had its best start to a year since 1989.
"The stronger performance of more conventional assets, certainly equity markets, has taken the shine off gold," reckons Daniel Brebner, head of metals research at Deutsche Bank.
"Safe-haven assets have performed fairly poorly as expectations of growth have improved...in that kind of environment, there is no significant motivation for gold prices to rise.
"Bullion's correlation to the broader equity market has weakened significantly in the past month," agree analysts at VTB Capital.
The so-called speculative net long position of gold futures traders, a closely-watched measure of futures market sentiment, fell to levels not reported since August during the week ended last Tuesday, suggesting traders have become less bullish about gold.
BullionVault's Gold Investor Index meantime, a measure of western investor sentiment towards gold, fell in January following five months of gains.
"There is probably some [downside] room to go if a negative catalyst were to emerge in the coming weeks," says a note from UBS.
"But the scope is becoming more limited. Back in May 2012, short-selling weighed heavily on gold for most of the month. As a result of the extreme reduction in net spec length, though, it became easier for gold to bounce back in June and, after a period of consolidation, the market found itself in good shape positioning-wise for the rally in August and September. Gold could find itself in a similar scenario – if it manages to extend the resilience displayed thus far."
Silver meantime climbed above $31.70 an ounce, though like gold was trading broadly in line with where it started the week by lunchtime in London.
The European Central Bank is unlikely to cut its main policy interest rate from its record low of 0.75% when it makes its latest policy decision tomorrow, and is not expected to change rates until July 2014 at the earliest, according to a survey of economists by newswire Reuters.
From its 2012 low in July last year, the Euro has gained more than 10% against the Dollar, prompting fears that a stronger Euro could harm Eurozone exports and thus the prospects for economic recovery.
"In terms of the pain threshold for the Eurozone as a whole, we're right on it," says Deutsche Bank economist Gilles Moec.
"A much stronger Euro could challenge the positive market vis-a-vis the [Eurozone] periphery, and structural improvements in competitiveness seen there" adds Elga Bartsch, economist at Morgan Stanley in London.
Since hitting an all-time high last September, Euro gold prices have fallen 11%.
Over in India, traditionally the world's biggest gold buying nation, the central bank said Wednesday it would consider limiting the amount of gold banks can import in "extreme circumstances".
"Large gold imports are adversely impacting the current account deficit," said a draft report from the Reserve Bank of India last month, which proposed various policies for reducing bullion imports into India.
Recommendations in the full report published today include setting up a bank to monetize "idle gold" and promoting gold-linked financial instruments as an alternative to actually owning gold bullion.
The report also considers revisiting "fiscal measures" to reduce gold imports. Last month, India's government increased import duty on gold from 4% to 6%.
India's "anti-gold" policy could lead to a rise in gold smuggling, Philip Klapwijk, global head of metal analytics at metals consultancy Thomson Reuters GFMS said this week.
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