Gold poised for best week in 11 months on Swiss move

SINGAPORE (Reuters) - Gold traded near its highest level in four months on Friday and looked set to post its best week in 11 months, as investors sought safety in the metal after Switzerland scrapped a cap on the franc.

FUNDAMENTALS

Spot gold was steady at $1,261 an ounce by 0042 GMT.

The metal jumped to $1,266.11 on Thursday, its highest since September, before paring some gains to close up 2.6 percent.

It is up 3.2 percent for the week, its biggest weekly jump since the week ended Feb. 14.

The Swiss National Bank shocked financial markets on Thursday by scrapping a three-year-old cap on the franc, sending the currency soaring against the euro and stocks plunging on fears for the export-reliant Swiss economy.

The U-turn sent the franc nearly 30 percent higher against the euro in chaotic early trading. Coming a week before the European Central Bank is expected to unveil a bond-buying programme to counter deflationary pressures, it fed speculation that this quantitative easing scheme will be so big that the SNB would have struggled to defend the cap.

The Swiss move sent most European shares soaring while bond yields and Swiss equities tumbled. U.S. stocks closed lower, marking a fifth straight session of losses.

Asian shares stepped back on Friday and major currencies mostly stuck to late U.S. levels as investors caught their breath, after Switzerland's unexpected move.

Gold's leap to four-month highs after the Swiss move was triggered by wider market volatility rather than an improving profile for the metal, analysts said.

In a reflection of improving investor confidence, SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings rose 1.35 percent to 717.15 tonnes on Thursday.

MARKET NEWS

The euro hovered above an 11-year trough early on Friday as investors wagered the Swiss move to abandon its currency cap meant it was almost certain the European Central Bank would launch large-scale bond buying next week.

(Reporting by A. Ananthalakshmi; Editing by Michael Perry)