Gold Price Bounces, “Unlikely to Fall” Below $1,600

According to expert Walter de Wet of Standard Bank, he believes that the floor for gold is $1,600/ounce and does not see gold falling below that level. He continues to say that interest rates will probably remain low and that monetary supply will continue to grow, which are both positive things for gold.

Thursday, April 5, 2012, 10:13am EDT
Written by GoldAlert Staff.
Gold Alert

GOLD PRICE NEWS – The gold price advanced $11.44, or 0.7%, to $1,630.15 per ounce on Thursday following its worst two-day stretch in over a month. This morning’s strength in the price of gold was a welcome respite from the substantial selling that has engulfed the yellow metal of late. Silver climbed in concert with the gold price, by $0.35, or 1.1%, to $31.61 per ounce. U.S. equity markets opened modestly lower, with the S&P 500 Index down 0.2% at 1,396.24, after weekly jobless claims of 357,000 came in slightly above the 355,000 consensus estimate among economists.

On Wednesday the recent weakness in the gold price continued, as the yellow metal sunk $28.09, or 1.7%, to a 12-week low of $1,618.71 per ounce. The world’s most liquid gold price proxy, the SPDR Gold Trust (GLD), tumbled $2.68, or 1.7%, to $157.21 per share. The sell-off in the price of gold was driven by further strength in the U.S. dollar and widespread liquidation in financial markets.

Silver fared even worse than the gold price yesterday, as it dropped $1.26, or 3.9%, to $31.35 per ounce. Other precious metals posted steep losses as well, with platinum futures sliding by 3.4% to $1,603.30 per ounce and palladium by 3.7% to $635.25 per ounce. As for cyclical commodities, copper futures retreated by 3.2% to $3.80 per pound and crude oil by 1.9% to $102.09 per barrel.

Gold shares took it on the chin again alongside the price of gold, as the Market Vectors Gold Miners ETF (GDX) finished down by $2.04, or 4.2%, at $46.71 per share. On an intra-day basis, the GDX dropped to $46.01 yesterday – its worst level since May 21, 2010. Furthermore, the GDX extended its year-to-date loss to 9.2%. Notable decliners included Agnico-Eagle Mines (AEM), Eldorado Gold (EGO), and IAMGOLD (IAG). AEM fell by 3.9% to $32.63, EGO by 5.0% to $13.02, and IAG by 4.6% to $12.38 per share.

With Wednesday’s decline, the gold price cut its year-to-date gain to only 3.5% and reached its lowest level since January 10th of this year. The primary catalyst for the latest weakness in the price of gold was Tuesday’s release of the Fed minutes. There, the Ben Bernanke-led central bank noted the improvement in the U.S. labor market and “distanced itself” from the possibility of a third round of quantitative easing (QE3), according to HSCB analyst James Steel.

Yesterday’s ADP Employment report aligned with the Fed’s economic assessment, as the data showed job growth of 209,000 – above the 206,000 figure economists were expecting. Joel Prakken, chairman of Macroeconomic Advisers LLC – which produces the report with ADP – stated that “Labor market conditions continue to improve at a moderate pace. Employment grew in all major sectors of the economy tracked.”

Looking ahead for the price of gold, several analysts recently turned cautious on the yellow metal’s short-term prospects. Walter de Wet, a commodities strategist at Standard Bank, wrote in a report to clients that “I wouldn’t be surprised if we push lower towards $1600.” However, he also noted that the $1,600 level is “what we think is a floor and we are unlikely to fall substantially below that.”

Over the longer-term, De Wet maintained a bullish stance but did not offer a specific gold price target. He contended that real interest rates are likely to remain in negative territory through at least the end of 2012. “We still think globally that monetary supply will continue to grow,” he asserted, “These things are positive for gold.”

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