INTERNATIONAL. Wholesale market gold prices touched their lowest level since the first week of January Friday, hitting US$1,574 an ounce before recovering some ground, while stocks and commodities fell and US Treasury bonds gained, with dealers in major gold buying countries reporting continued limited demand for precious metals.
Silver prices fell to US$28.54 an ounce – also a four-month low, and 6.1% down on last Friday's close.
Heading into the weekend, spot market gold prices looked set for a 3.7% weekly loss by Friday lunchtime in London. Based on PM London Fix Gold prices, the week ended 2 March was the last time gold fell further in a single week.
On the currency markets, the Euro fell to its lowest level against the Dollar since January 23 – two days before the Federal Reserve published policymakers' interest rate projections for the first time, showing a majority expected near-zero rates until at least late 2014.
The US Dollar Index – which measures the Dollar's strength against a basket of other currencies – hit its highest level since March 16 this morning.
"When the market gets very nervous, then they buy Dollars and gold finds it difficult to rally," says Jesper Dannesboe, senior commodity strategist at Societe Generale in London.
"Given what's going on in the markets at the moment, any rally will probably just be a bounce before another setback."
The Reserve Bank of India ordered exporters to convert 50% of their foreign exchange holdings to Rupee Thursday, a day after the currency closed at an all-time low against the Dollar in Indian trading.
Despite the central bank's move, however, the Rupee again fell against the Dollar on Friday, at one point coming within 0.6% of Wednesday's low. Rupee gold prices however still traded slightly lower this morning. The most heavily traded gold contract on Mumbai's Multi Commodity Exchange, the June delivery contract, touched its lowest level in over a month during Friday's trading.
"Slowly deals are taking place as market is in the falling mode," one dealer told newswire Reuters.
"Traders will try to catch the bottom...[but] people will not be willing to maintain huge inventory in a falling market and only resort to need-based buying."
Over in China – behind India the world's second-largest gold buying nation last year – some gold dealers say they expect to see gold demand growth fall this year.
"Chinese consumers share a quite pronounced tendency in which they usually buy gold when prices are rising and refrain from purchasing when prices are conceived to be on a downtrend," says Xin Zhihong, vice president at Shanghai jeweler Lao Feng Xiang.
"Some consumers are now sitting on the sidelines...the expectation that gold prices will always rise and that gold's value can only appreciate seems to have faded."
"It's the worst start of the year [for Chinese gold demand] since the financial crisis in 2008," adds Emily Li, brand general manager at Chow Sang Sang, the second-biggest gold jeweler in Hong Kong.
China's gold imports from Hong Kong – seen by many as a proxy for overall imports – rose 59% month-on-month in March, figures published this week show. The 63 tonnes figure however was 39% down on last November's all-time high, while the volume of gold heading from China to Hong Kong also rose, leaving net exports in March at 38 tonnes.
Chinese consumer price inflation fell to 3.4% last month – down from 3.6% in March, according to official data. Growth in retail sales and industrial production also slowed, while figures published Thursday show exports grew by 4.9% year on year in April, compared to 8.9% y-o-y a month earlier.
The lower CPI figure "confirms that inflation is trending down and that the policy focus will remain on promoting growth," reckons Zhang Zhiwei, Hong Kong-based China economist at Nomura.
"The weak export data yesterday put more pressure on the government...probably policy loosening will become more likely going forward."
Here in Europe, the Spanish government is set to miss its deficit targets in both 2012 and 2013, with both Spain and Italy expected to fall back into recession, according to European Union forecasts published Friday.
The forecasts, produced by the European Commission, show that Spain's deficit for this year is expected to be 6.4% of GDP – compared to an EU target of 5.3%. In 2013, Spain is expected to have a 6.3% deficit-to-GDP ratio, versus a target of 3%.
Despite the news, yields on 10-Year Spanish government bonds fell slightly this morning, dipping back below 6%.
France meantime is forecast to meet its 2012 deficit target of 4.5% of GDP. Next year, however, the Commission says it expects the French government deficit to be 4.2% of GDP, meaning that France, like Spain, would miss the 3% target. The Commission has the power to fine governments that miss EU targets.
"Without further determined action...low growth in the EU could remain," said Olli Rehn, European Commissioner for economic and monetary affairs, adding that there are "large disparities between member states".
In Germany, consumer price inflation remained unchanged at 2.1% last month, official figures published Friday show.
German inflation however is likely to be "somewhat above the average within the European monetary union" Bundesbank head of economics Jens Ulbrich told the German parliament finance committee this week.
Greece, which is still without a government after Sunday's election, must stick to its reform plans or it risks having bailout payments stopped, German foreign minister Guido Westerwelle said Friday.
"If Greece strays from the agreed reform path, then the payment of further aid tranches won't be possible," said Westerwelle.
Over on Wall Street, JPMorgan recorded a $2 billion trading loss in the first quarter of the year, Q1 earnings published Thursday show.
"This puts egg on our face," said JPMorgan chief executive Jamie Dimon, who blamed "errors, sloppiness and bad judgment" for the losses.
Investors meantime are "losing faith" in commodity hedge funds, Reuters reports.
"For people that only came in when the noise about commodities started a couple of years ago, they have basically done nothing," one investor told the newswire.
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
For more information, please visit BullionVault.
(c) BullionVault 2012
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