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Gold prices were steady on Friday, however, after suffering a steep loss in the prior session were on track to post a weekly loss, for the first time since September.
By Leia Toovey- Exclusive to Gold Investing News
Gold prices have been battling with resistance in a broad range between $1,700 and $1,800 an ounce for some weeks now, after trading above $1,900 at the peak of its recent rally. Gold futures for December delivery finished the week at $1,725.10 an ounce.
Fears of the European debt situation have unnerved investors, even though the world’s largest economy, the United States, has recently churned out some promising data, suggesting that its economic recovery is gaining steam. On Thursday, gold suffered steep losses as a bond auction in Spain was undersold, and the interest rate paid was near 7 percent, a key level that analysts claim is unsustainable over the long-term. Also, contributing to Thursday’s slide was a report by Fitch Ratings that some major US banks, were at risk of suffering huge losses if Europe were to unravel.
On Friday, Italian and Spanish government debt yields fell as the European Central Bank (ECB) bought bonds in the secondary market. The euro rose against the dollar over speculation that European leaders would approve the lending of funds from the ECB to the IMF to bail out struggling Eurozone economies.
Gold has been tracking the equities lower over the past few weeks, a fact that has stumped analysts, as traditionally, safe haven gold should rise, when economic turmoil spreads. Some analysts are still holding that if the crisis continues, gold could revert back to its classic behavior. “There is a strong argument that this euro crisis should support gold, especially if the solution to it will involve printing money and easing monetary policies, which are inflationary measures. On the other hand these big shocks are making investors nervous,” said Matthew Turner, an analyst at Mitsubishi.
Attempting to qualify gold’s recent behavior, in an interview with Bloomberg Tao Jinfeng, chief investment consultant at Haitong Futures Co., China’s largest brokerage by registered capital, claimed “Gold is still an attractive haven investment. Gold’s recent performance has been hampered by the stronger US dollar.”
One reason why gold may be falling in unison with the equities is the speculation that the International Monetary Fund (IMF) will be selling gold to help Europe. With Germany’s recent declaration that its gold is “untouchable” an IMF sale is a real possibility. Bundesbank, the central bank of Germany, which is responsible for the oversight of the county’s gold, recently issued a statement opposing any gold sales. The IMF is one of the largest owners of gold in the world, holding 90.5 million ounces or 2,814.1 metric tons of gold.
Despite gold’s recent weakness, analysts are bullish on the future. The World Gold Council released a gold report last Thursday, in which they showed that demand for gold rose by 6 percent to a 1-1/4 year high in the third quarter of 2011, driven by central bank purchases and European demand as safety against the escalating euro crisis, “This equates to $57.7 billion, an all-time high in value terms,” the council’s report said. “Unsurprisingly, investment demand for gold was a key driver. … Increasing levels of inflation, the US credit-rating downgrade, a worsening Eurozone sovereign-debt crisis and the lackluster performance of many assets drove investors to increase holdings in gold in order to protect their wealth,” said Marcus Grubb, the World Gold Council’s managing director of investment. “Given gold’s proven risk-mitigation properties, it is likely that investors will continue to seek protection from economic uncertainty, which shows no signs of abating,” he concluded.
According to a Bloomberg survey, 19 of 29 traders and analysts expect gold to climb next week as investors continued to seek the safest assets. Holdings in exchange-traded products backed by the metal are within 0.3 percent of the record 2,330 tons reached in August, data compiled by Bloomberg show.
Securities Disclosure: I, Leia Toovey, hold no direct investment interest in any company mentioned in this article.
