Gold struggles to remain above $1700
Gold closes the week down 3.4% at $1711.80.
Having spent the beginning of the week marking time, gold was hit hard on Wednesday as the US Fed Chairman, Bernanke, dampened speculation for further monetary easing. Elsewhere, mixed economic news should have proved the catalyst for further gains in the gold price.
While the Greek bailout has been sealed, the EU awaits certain assurances before releasing the full €130 billion. This said, with figures last week showing the European economy retracting further (fourth quarter gdp softened by 0.3%, and industrial manufacturing figures for January showed further shrinkage), the ECB has added another €530 billion to its program of cheap 3 year loans to banks. This brings the total of such lending to €1 trillion in the last three months as the ECB battles financial collapse.
Economic growth in the fourth quarter outdid expectations; though falling durable goods orders in January may point to an easing economy moving forward. Certainly, while Bernanke made no dove like statements for the market to get excited about, he did say that he saw problems for the economy from Europe.
While home prices in the US are falling, oil prices continue to rise, hitting $110 per barrel this week. Further inflationary pressures are expected moving forward as the higher oil prices filter through the economy.
Growth in Asia remains solid but slowing, with the powerhouses of China and India appearing likely to moderate through 2012.
With this backdrop, the fundamentals for gold remain intact. Rising inflation, falling economic growth, easier money in Europe, and broadly negative interest rates should pave the way for further firmness in the gold price.
Gold’s pull back this week stems from a lack of volume as well as Bernanke’s comments, as investors shied away from committing further funds to the yellow metal in a consolidating market.
Bulls of the metal will have been pleased to see the $1690 support level hold on Wednesday, and will hope that it continues to do so if re-tested. If it does then further buying is likely to take the price back to this year’s highs around $1780.
Certainly, as reported by the China Daily, the Bank of China seems convinced of the long-term opportunities of gold as it has partnered with the CME Group to examine the introduction of Yuan denominated futures.