2011-12-23

Physical demand from China (ahead of January 23 New Year) and year end-related buying from India which is providing support to the gold price

The gold price dipped $8.07 to $1,608.82 per ounce Thursday after U.S. weekly jobless claims fell to 364,000, their lowest level since April 2008. The modest decline in the gold price coincided with a firmer U.S. dollar, which rose fractionally against a basket of foreign currencies.

Jonathan Loynes, Chief European Economist at Capital Markets, wrote in a note to clients that “While this might help to address recent signs of renewed tensions in credit markets and support bank lending, we remain skeptical of the idea that the operation will ease the sovereign debt crisis too.”

Gold shares stabilized near the flatline alongside the gold price on Wednesday, with the AMEX Gold Bugs Index (HUI) closing lower by just 0.1% at 513.56. Notable decliners in the sector included Gold Fields (GFI) and Kinross Gold (KGC), which slid 1.0% and 0.5%, respectively. In contrast, Barrick Gold (ABX) advanced 0.4% to $46.28 per share and Newmont Mining (NEM) rose 0.4% to $62.88 per share.

With the gold price relinquishing most of its gains yesterday, the Gold is now lower by 7.4% this month. Looking ahead to the remainder of the year, Scotia Mocatta analyst Simon Weeks forecasted that “Despite on-going physical demand from China (ahead of January 23 New Year) and year end-related buying from India which is providing support to the gold price,” he remains cautious on the Gold.

Weeks attributed his stance to gold’s current bearish condition from a technical perspective, along with redemptions from ETFs and “headline risk in thin market conditions.” He predicted that the $1,600 per ounce level “will likely act as a magnet” as 2011 draws to a close.

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