Gold in Line for Biggest Weekly Drop in Two Months Posted by Adam King on October 12, 2012
Gold prices were steady on Friday, placing gold in line for its biggest weekly drop in two months, though gold prices remained within sight of recently touched 11-month highs as markets look for more direct indication on if and when Spain will formally request a bailout to aid the country’s finances.
Standard & Poor’s cut Spain’s credit rating to just one notch above junk status on Wednesday as the Mediterranean country’s economy minister said on Friday there is no political resistance to a bailout request within the greater euro zone.
The spot price of gold was flat at $1,767.89 per troy ounce, setting the metal for a weekly drop of 0.7 percent, the largest decline in gold since August 5.
U.S. gold futures were also down to $1,769.10 per troy ounce.
VTB Capital analyst Andrey Kryuchenkov told Reuters what’s happening is the market is taking a breather after losses from the start of the week in order to consolidate. He added that prices could drift lower towards $1,760 per troy ounce.
He added that investors are very cautious with exchange-traded products near record highs and long speculative positions are substantial while showing little reaction to Spain’s downgrade.
Further drops toward $1,750 per troy ounce could be in line as the market is lacking momentum, but a low interest rate environment is expected to protect prices with solid support at the lower breakout points.
Commerzbank, in a note to its clients, said the ultra-loose monetary policy pursued by central banks is likely to preclude any sharper fall in prices.
In the world largest gold markets, a weakened rupee has driven local gold prices higher and is causing a lag in buying interest in India. Net gold imports from Hong Kong to China in August dropped 26 percent year on year as prices and newly kindled concerns over economic slowdown clipped investor appetite, according to official Hong Kong trade data.
David Govett, head of Precious Metals at Marex Spectro said that China and India, as the world’s largest gold consumers, are a big reason as to why gold has stayed high over the last year. He added that a high price point causes the market to rely on speculative interest in order to sustain it, which is never a great way to keep a rally going, in his analysis.
Holdings of gold-backed exchange-traded funds also drifted lower for the first time in two weeks on Thursday but remained close to a record high of 75.03 million ounces.