Picture: ISTOCK
Picture: ISTOCK

London — Gold rose to a four-month high on Friday and was on track for a fifth straight weekly gain as the dollar fell against the euro on an agreement for a political coalition in Germany.

Spot gold rose 0.7% to $1,331.62 an ounce by 11.02am GMT, having touched its highest since September 15 at $1,333.02. The precious metal is up 0.9% this week and set for its longest run of weekly gains since April. US gold futures were up 0.7% at $1,332.30.

The dollar index, which measures the greenback against six major currencies, fell to its lowest since September 11 at 91.308.

The euro jumped to a three-year high after party sources said that German Chancellor Angela Merkel’s conservatives and the Social Democrats (SPD) had agreed a blueprint for formal coalition negotiations. "This agreement of a coalition will change the situation of a hung parliament in Germany and that is why the euro is positive, weakening the dollar, which is one of the reasons why gold is firmer this morning," said Quantitative Commodity Research consultant Peter Fertig.

Friday’s news from Germany helped the euro to extend gains made on Thursday after minutes from a December European Central Bank (ECB) meeting signaled that the ECB could begin to wind down its €2.5-trillion ($3-trillion) stimulus programme this year.

A stronger euro potentially boosts demand for gold by making dollar-priced bullion cheaper for European investors. "There was some strong buying out of China on Friday suggesting some physical demand ahead of the Lunar New year," said Stephen Innes, Asia-Pacific head of trading at Oanda.

The dollar was pressured by data showing that producer prices in the US fell for the first time in nearly one and a half years in December amid declining costs for services.

US consumer price index (CPI) data is due later on Friday.

Among other precious metals, spot silver rose 0.9% to $17.13 an ounce, heading for its first weekly loss in five weeks. Silver is up 0.6% so far this week.

Platinum rose 1% to touch its highest since September 11 at $997, on track for a fifth straight weekly gain. It is up 2.5% so far this week. Palladium was up 0.4% at $1,087.93 after dropping on Thursday to a more than one-week low at $1,075.50.

Reuters