Gold: Beyond the eurozone debt crisis

Gold prices have eased since mid year highs.
Gold price have continued to fall from their mid year highs of over $1900/oz, with Thursday morning seeing a further 2% easing to $1,608.40 as the Eurozone debt crisis heads towards the weekend unveiling of a comprehensive plan by EU leaders.

But analysts say that Eurozone concerns aren’t alone.This week’s release of Chinese 3Q 2011 GDP data showing a fall to 9.1% from 9.5% in 2Q has also helped to undermine sentiment about gold. Ira Harris, from Praxis Trading, says that while very sensitive to developments out of Europe gold prices are also waiting for news from elsewhere.

“The price ofthe precious metalis highly dependant on the cost ofhigh-yieldassets thatareresponsive to thecommentsby European politiciansfor a resolutionof the debt crisis. But other macroeconomic statistics may have an impactprecious metal prices,in particular, the figures from the housing marketandthe consumer price indexinthe U.S. in September.”

But Harris adds that the gold prices could still be pushed higher depending on attempts by major economies to deal with debt issues or weak economic growth.

"Right now many factors contribute to growing of gold prices. The problems of banks and government debt in Europe are potentially going to be solved with injections of liquidity, with the zero interest rate policy applied in the U.S. and Japan, and Switzerland.”

MichaelVerdyan from Forex, adds that the US data could be particularly critical, against a backdrop of EU events dominating market focus.

“If U.S statistics are moderately positive it will support gold. In addition, if data on U.S consumer price inflation is higher than forecast – 3.8% in annual terms, precious metal may resume its moderate growth. Iif economicstatistics from the U.S.are not as strong asexpected, and Europe debt problems remain in focus,goldmay continue todecline.”

Verdyan added that contradictory comments being released in the media by political figures in the Eurozone ahead of the weekend summit are likely to see a risk off environment underpin gold.

“The new wave of negative sentiment came with the latest news from German Finance Minister, WolfgangSchauble, who said that, no bailout game plan is to be announcedduring the coming October, 23 EU summit. Investors began toclose long positionsin assetswith high risk: equity and commodityassets, opting for U.S. dollar.”

Robert Mantse, Metals and Mining analyst at Otkritie, said gold prices have grown significantly, and then retraced, but have further growth ahead.He says the outlook is very fragile with downside risks in focus, with sovereign debt concerns and continued long term low interest rates in developed economies positive for the metal.

“We believe that the momentum remains upward for gold prices, due to a number of factors: (1) global economic uncertainties, (2) relatively low interest rates to remain in the near term (we do not see US interest rising until the end of 2012, at the earliest – as we emphasize, in an election year, will be on the economy and job creation), (3) gold’s status as an alternative currency is here to stay, and, (4) fear of inflation down the road.”