Gold follows euro higher but fervor tempering

In the Lead: “Children at work”

The IMF’s quest for another $500 billion in lending resources managed to boost the euro for a second day this morning and lifted gold prices to five-week highs around the $1,670 resistance area before momentum waned and the yellow metal stalled out and then retreated to near the $1,660 level. The gold-euro correlation remains fairly strong and, for the latter, much is currently being pinned on possible future developments as opposed to current reality, so the (market) jury remains out on how sustainable the common currency’s rise to the $1.29 mark will prove to be.

Do note that the US and the UK have not lined up behind the IMF to support the idea of raising such funds. At any rate, a bit of success was noted in Spanish and French debt auctions this week following the orgy of ratings downgrades that were thrown at nine EU nations last week and this is still reverberating in the euro at the moment. On the other hand, the common currency has once again reached levels at which the Swiss National Bank’s intervention trigger finger is getting mighty itchy…

At any rate, the European debt debacle has thrown a few wrenches into the global economic machinery, prompting the World Bank to project that global growth might not be as robust as formerly envisaged by economists. The WB said that world economic growth might only come in at the 2.5% level this year and that the crisis in the Old World could aggravate already in-progress slowdowns in places such as Mexico and India, not to mention China.

Okay, we will mention China anyway; the WB noted that foreign direct investment in that country fell by the largest amount last December and reached levels not seen since 2009. The institution warned that developing economies should “prepare for the worst.” The World Bank, according to Bloomberg News, also said that “Emerging markets are more vulnerable than in 2008 to a renewed global crisis because rich nations wouldn’t have the fiscal resources they had back then to support their economies. Developing countries, whose deficits have also widened, should engage in contingency planning to have the necessary fiscal leeway if need be.”

Spot gold dealings started the Thursday session with a modest $2.50 gain near $1,661 per ounce and then fell about $6.50 to $1,652 after the US released initial jobless claims and December inflation figures. The yellow metal remains in orbit around the 50% retracement level of the decline that began at $1,803 in early November and while $1,700 still remains a viable target in this corrective move, the momentum in the metal is apparently stalling.

Speculative fervor in gold has apparently been tempered somewhat, as seen in the most recent CFTC market positioning data. Gross gold positions are presently at their lowest levels since April of 2009. The yellow metal’s recent volatility-laden period has also prompted a few academics to reassess the certainty levels (to so-called “sure thing factor”) that some have attached to investing in it.

Meanwhile, physical demand remains a bit of a question mark as, despite decent Asian offtake levels this week, the Chinese buyers will (after tomorrow) embark on celebratory New Year activities and Indian ones still appear to remain not too eager to load up on the metal at current or soon to be duty-inflated prices. Standard Bank (SA) analyst summed it up thusly this morning: “However, with today the last day of work for many Chinese, this support cannot be relied on over the coming weeks. Unless Indian buying fills the gap, which is unlikely given the relatively lacklustre activity we’ve seen over the past few days, we could see gold tracking the dollar even more closely as we move into next week.”

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