Gold edges lower, price could retest $1,200 if US GDP surprises

Otmane El Rhazi from The Bullion Desk.

Gold trended downward in early morning trading on Friday, pressured lower by reduced Chinese demand and a stronger dollar ahead of the weekend.

The spot gold price was last at $1,205.90/1,206.70 per ounce, down $3.50 on the previous session’s close.

Although demand in China this morning was solid, restocking after the New Year holiday seems to be fading, MKS reported. The Chinese had initially buoyed prices on their returning to the market, with premiums hitting highs of around $6, although sources reported that it has retreated to at around $3 this morning.

US GDP figures this afternoon will closely watched – a strong reading may see gold retesting $1,200, analysts suggested.

Yesterday, the dollar hit a one- month high of 1.1183 against the euro despite mixed US inflation data. While inflation at -0.7 percent was worse than the forecast -0.6 percent, core inflation, which removes volatile elements such as energy, at 0.2 percent was better than predicted thanks to rising house prices.

“January saw the US inflation rate slide into negative territory for the first time since October 2009, raising real interest rates in the US as well as the opportunity costs of holding gold,” Commerzbank said in a note. “What is more, US consumer prices – discounting energy and food – increased somewhat more strongly than anticipated, which triggered speculation about interest rate hikes.”

A cut to import duties in India that could be announced in tomorrow’s annual budget might provide some support.

There has been speculation since the start of the year that India’s central bank might cut the duty on gold by 2-4 percentage point from 10 percent. Domestic demand would “undoubtedly benefit” from a cut, HSBC said in a note earlier this month.

Data today may add some volatility to currency markets, with the German preliminary CPI and US preliminary GDP figures topping the bill.

In numbers already released today, German import prices at -0.8 percent were as expected, while French consumer spending at 0.6 percent beat the consensus -0.3 percent. The Italian preliminary CPI at 0.3 percent was better than the forecast 0.2 percent and the previous reading of -0.4 percent.

The Chicago PMI, pending home sales and the University of Michigan’s consumer sentiment and inflation reports are due from the US later.

In the other precious metals, silver was last 13 cents lower at $16.43/16.48 per ounce, while platinum was down $4 at $1,168/1,173, as was palladium at $803/808.

(Editing by Mark Shaw)

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