GOLD'S FRESH ASSAULT on $650 slipped hard and fast as the weekend drew near, causing
the metal to drop versus all currencies just before New York opened on Friday.
Between the morning and afternoon Fixes in London, gold fell $9 to $645.70 per ounce. At its lowest point, the metal traded at just $643.75.
But it recovered as the US session wore on, settling above $648 per ounce to record its highest weekly close since August.
For Sterling investors it ended Friday just shy of £330 per ounce, more than 4.7% higher from the start of January. Against the Euro, gold closed the week above €500 per ounce for the first time in 6 months.
"Gold's up $50 on the year, so there'll be profit-taking," said one Chicago trader to Bloomberg. "We're all getting rewarded for buying dips."
Buying the dips has proven a wise course so far this year. Gold's sharp jump of the last month saw it gain more than 8% this week alone before the sell-off in New York.
"The [gold] market could not extend itself, and quickly the nervous buyers have exited seeking to book profits as the US Dollar found some strength," notes Peter Spina, chief investment strategist at GoldSeek.com.
"There is no reason to believe this is nothing more than just a temporary pullback to shake out some weak hands."
Indeed, the pullback from Thursday's highs above $660 per ounce offers longer-term gold investors a strong buying opportunity.
"This selling will set up the gold market for an oversold condition," reckons Ned Schmidt, editor of the Value View Gold Report, "which will create a buying opportunity for true investors next week."
Profit-taking by short-term traders this week was only to be expected. Ugly losses in the price of base metals – particularly zinc and copper – may also have leeched into the gold market.
The Wall Street Journal reported Friday that a London-based commodity hedge fund – Red Kite Management Ltd – is down 20% for this year so far. It wants to extend the withdrawal notice period for its investors from 15 to 45 days.
"Gold is being dragged down by the base-metals complex," said Michael Guido, director of hedge-fund marketing at Societe Generale in New York late Friday.
He suggested that Red Kite or perhaps another base-metals fund losing money had to sell its winning gold positions to cover losses elsewhere. (You can read more on this problem here...)
Looking ahead as February wears on, physical gold demand from China is due to pick up ahead of the Lunar New Year in the middle of this month. For now, however, higher gold prices this week deterred jewelry buying and encouraged scrap supplies to rise.
"There's some selling emerged after gold's recent gains," said Wang Xinyou, senior gold analyst at Agricultural Bank of China in Beijing, to Reuters earlier on Friday.
"[But] if you juxtapose the recent strength in precious metals with the sluggish performance in some of the base metals such as copper, it shows that people are still focused on US currency weakness in the medium-to-long-term...
"Gold will also retain its appeal as a safe heaven," he added, citing the Middle East's ongoing conflicts and the threat of trouble caused by North Korea's regime.
"We received a lot of scrap [gold] from Indonesia and Thailand," said a Singapore dealer. "We had expected the price to fall below $640 this week, but it didn't happen...Higher prices encourage sales from jewelers."
This week brought news that China's physical gold demand in 2006 didn't change in tonnage terms, despite gold averaging a 35% rise from 2005 in Dollar terms. And Chinese gold demand may also get a fresh boost from changes in the country's tax rules.
The World Gold Council on Friday asked the Beijing government to review China's 17% value-added tax charged on gold bullion bars.
"We see a huge demand potential given the Chinese people's large bank deposits," said Albert Cheng, the WGC's managing director for the Far East, today.
China's private bank deposits are now valued around $2 trillion. If gold trading became easier for private individuals – as it did in Europe when VAT was removed from gold bullion bars – the effect could be dramatic.
To learn more about China's growing demand for investment gold – plus the outlook for India's new gold ETFs and the growing shortfall in global gold mining supplies – click here and read our latest analysis in full...