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Gold Prices Hold Steady Despite Strong Dollar
By Alix Steel
01/06/12

Another factor helping gold Friday was renewed interest in physical buying. Nigel Moffatt, treasurer and manager at the Perth Mint Depository, said there has been an increase in Chinese and Indian buying during the first week in January.

"A lack of supply in the local market has seen wholesale kilobar premiums around $1," said Moffatt. This compares to dead demand in December.

"We did not produce many kilobars in the past three weeks due to zero demand out of India and very limited Chinese demand due to Chinese dealers being overstocked," said Moffatt.

The Bombay Bullion Association said that in the first quarter India might import 143 tons, just half of what it did in 2011 primarily due to higher prices as the rupee continues to depreciate against the dollar. This comes after very low demand in the fourth quarter.

"Weak growth, weak rupee all of these have conspired to really put a dent into the demand from India during the very quarter that was supposed to be stellar," said Jon Nadler, senior analyst at Kitco.com. Nadler doesn't think that strong central bank buying will make up for a slowing in physical demand. "They are still one-off purchases from places like Turkey that is simply managing internal policy."

Nadler instead is watching gold ETF inflows, which he said were 50% lower in 2011 versus 2010. Nadler said that the gold ETFs added 134 tons during the year versus 291 tons in the second quarter of 2010 and 465 tons in the first quarter of 2009. Redemptions were minimal, however, the SPDR Gold Shares(GLD_) ended the year with 1,254 tons of gold.

Pursche, on the other hand, said he expects investor demand to pick up in 2012 as Europe resolves its debt issues and global growth increases.

"It will be a volatile year for gold but ultimately a fairly rewarding year for investors," he said. His firm's forecast is $1,800 an ounce but "I am still a little bit more bullish I think that inflationary pressures are going to come through."

"When you look at the gold price today it's really a reflection of a strong dollar due to the events in Europe and weak investment demand in the fourth quarter," he said. "We don't see that persisting." Pursche points specifically to China and Brazil taking steps to add liquidity to the global monetary system.

China recently lowered its reserve ratio requirements, which means banks are allowed to hold less cash in their coffers. A more dramatic rate cut hasn't materialized, but China's two-day Financial Work Conference begins Friday. The country holds the economy policy meeting every five years to lay out its plan for its economy, which might help shed some light on its monetary goals.

Gold mining stocks were struggling to gain traction Friday. Barrick Gold(ABX_) was down 0.1% at $47.97 while Randgold Resources(GOLD_) was shedding 0.23% at $108.02. Other gold stocks, Goldcorp(GG_) and AngloGold Ashanti(AU_)were mixed at $44.55 and $44.13, respectively.

--Written by Alix Steel in New York.

http://www.thestreet.com/story/11367435/1/gold-prices-eke-out-gain-ahead-of-jobs.html