Gold Prices to Drop on Dollar Strength and Likely Lower Asian Demand

Gold prices are set to drop next week with the yellow metal expected to continue battling a stronger US dollar, buoyed by the strengthening US economy.

Traders will track physical demand in Asia to see how buying tied to the ongoing wedding season in India and early purchases linked to 2015's Chinese New Year celebrations influence prices.

They will also track developments in India, the leading gold consumer, where the government could introduce import curbs, a move that will hit demand and negatively influence prices.

As many as 11 of 19 analysts polled in a Kitco Gold Survey said they expected gold prices to trade lower next week, while five predicted that prices will rise and three forecast prices to trade sideways.

Ken Morrison, editor of online newsletter Morrison on the Markets, told Kitco: "The most interesting development has been the sharp increase in futures open interest over the past week, up 8% and a two-year high, during a period when prices were consolidating.

"It indicates a lot of new money making big directional bets. Given the strengthening dollar here at week's end combined with the bear-flag-like pattern in gold futures, the risk/reward favours the bears for at least a retest of the [7 November] $1,130 low sometime in the next few days."

But a BofA Merrill Lynch note took the opposite view. It said: "We are turning bullish on gold. The Friday Bullish Reversal (Key Day Reversal) and completing impulsive declines from Sep'11, Jul-10 and Oct-21 say that the tide has turned from bearish to bullish.

"Further supportive of gold is the fact that the US is also in the process of topping out. Above 1180/1184 clears the way for 1241/1255 and, eventually, beyond."

Earlier, Commerzbank Corporates & Markets said in a note: "The gold price finds itself under pressure from a firmer US dollar, buoyant equity markets and continuing outflows from gold ETFs...Gold could face additional headwind from India, where the government and central bank are considering introducing new import restrictions in response to the considerable surge in gold imports recently.

"...The introduction of new import restrictions would thus have correspondingly negative effects on Indian gold demand in the coming months. For the time being, the upcoming gold referendum to be held in Switzerland on 30 November should preclude any more significant decline in prices."

Gold Ends Higher

US gold futures for delivery in December finished $15.80 higher for the week at $1,185.60 per ounce.

Indian Demand

October shipments into gold-crazy India jumped to about 150 tonnes, as against 143 tonnes in September and under 25 tonnes in October 2013.

September shipments surged 450% year-on-year to $3.75bn (£2.39bn, €3bn), which weighed on the nation's trade deficit.

India once again took over as the world's leading gold consumer in the third-quarter, according to the World Gold Council (WGC).

The subcontinent bought 225.1 tonnes of gold jewellery, coins and bars in the quarter ended 30 September as against the 182.7 tonnes bought by China, WGC data showed.