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A week in gold: Demand returns despite mixed US data

January 19 2013, 7:30am
A week in gold: Demand returns despite mixed US data

Gold had its best week since the start of the New Year, despite mixed economic data coming out of the US.

By Friday afternoon, spot gold was trading at US$1,689.12, US$14 higher on the week though lower than Thursday when the price threatened the US$1,700 mark for the first time since early December.

Gold has traded in a narrow range since the start of the year driven by economic data, said Deutsche Bank.

Thursday was typical, with the gold price falling initially after lower US initial jobless claims and recovering housing starts, but sentiment quickly reversed, boosting the gold price, as the Philadelphia Fed index dropped from 4.6 in December to minus 5.8 in January.

The Philly Fed numbers intensified worries about growth prospects in the US and increased the pressure on the Fed to maintain an accommodative monetary policy.

Deutsche Bank said: “We believe that market conviction could remain low in the near term but maintain our view that accommodative monetary policy by global central banks could support gold prices.”

The idea that sustained monetary easing will devalue the US dollar, which traditionally moves in the opposite direction to the gold price, has been a key driver behind gold’s performance over the past six months.

Deutsche said that even if the end of Fed QE [quantitative easing] is treated like the start of a tightening cycle, data shows that large bond sell-offs do not historically spark a major sustained turn in the US dollar.

Platinum had an even more eventful week, outstipping gold and topping US$1,700 on Thursday as the world's largest producer, Anglo American Platinum, unveiled a major retrenchment programme.

Anglo promised to cut 400,000 ounces of capacity or 7% of world output, close four shafts and sell another mine, moves that immediately sparked more unreast in South Africa. It was the first time since last March that platinum had been more expensive than gold.

Spot silver also rose, to a one-month high of $31.91,The US Mint suspended sales of its 2013 American Eagle silver bullion coins after running out due to investor demand.

On the corporate front, there was some better news from African Barrick Gold (LON;ABG), which picked up in its fourth quarter though it said problems at the Bulyanhulu minewill mean cash costs will be towards the higher end of guidance of between US$900 and US$950/oz. These problems will continue throughout the first quarter of 2013.

Broker Fox Davies said other good news for ABG was the renewal of the North Mara Special Mining lease on the existing terms and conditions for a fifteen year period. The broker raised its target price from £3.53 to £3.63, down largely to higher recoveries at North Mara.

 


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