Gold Price Sell-Off Threatens Weekly Gain

GOLD PRICE NEWS – The gold price turned sharply lower on Friday amid liquidation in precious metals following its best day in six weeks.  The spot price of gold fell by $15.67, or 0.9%, to $1,657.63 per ounce in morning trading after hovering near $1,675 earlier in the day.  In doing so, the gold price erased the large majority of its weekly gain and threatened to post its seventh consecutive weekly decline.

Silver headed south alongside the price of gold, by $0.47, or 1.5%, to $30.36 per ounce.  The sell-off brought silver’s gain this week to just 0.4%, although gold’s sister precious metal still remained on track for its second straight weekly advance.

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In spite of the weakness in gold prices and the broader equity markets, gold stocks recouped their earlier losses.  The Market Vectors Gold Miners ETF (GDX) traded near unchanged at $45.42 per share while the S&P 500 Index dipped by 0.2% to 1,468.51.

Notable gold stocks outperforming the GDX this morning included Anglogold Ashanti (AU), Eldorado Gold (EGO), and New Gold (NGD).  Shares of AU rose by 0.9% to $29.03, EGO by 1.4% to $13.02, and NGD by 3.0% to $10.92.

Several analysts attributed today’s gold price sell-off to higher than expected inflation data from China earlier in the day.  The Chinese consumer price index (CPI) jumped by 2.5% in December on a year-over-year basis, ahead of the level most economists were expecting.

Commenting on the inflation report, economists at IHS Global Insight stated that “The unexpected uptick in headline inflation will no doubt cause concern for policy makers as they attempt to maintain economic momentum into the new year, raising fears of an earlier-than-anticipated inflationary spike that would force monetary policy into tightness.”

With regard to the implications for the price of gold, Saxo Bank vice president Ole Hansen wrote in a note to clients that “It has moved back above its 200-day moving average and as investors are still a bit shaken in their beliefs, some quick profit has been taken today.  It’s critical that we close above 1,662 today, as it will be the first sign that a bottom has been established.”

Hansen added that “We still need to move back above 1,710 before we get some clean air in front of us…Gold accumulation in 2012, together with additional QE initiatives in Japan and the weaker dollar, should all in all help improve sentiment.”