Gold Prices Dip as IMF Warns on China

GOLD PRICE NEWS – The gold price traded slightly lower Tuesday, falling $2.00 to $1,718 per ounce.  Gold prices declined alongside the broader stock and commodity markets after the International Monetary Fund (IMF) warned that China’s 2012 gross domestic product could be cut in half to 4.25% from the current 8.5% projection if weakness in the global economy persists.  S&P 500 stock futures fell 3.60 to 1335.50 and copper prices fell 1.7% to $3.81 per pound.

The gold price began the week by retreating $5.87, or 0.3%, to $1,720 per ounce on Monday.  Strength in the U.S. dollar helped to pressure the price of gold, which posted its first three-session losing streak since mid-December.  The gold price fell to as low as $1,710.60 per ounce but pared its losses later in the day.  The SPDR Gold Trust (GLD), the largest gold ETF and gold price proxy, settled lower by $0.46 at $167.18 per share.

Gold shares traded near unchanged Tuesday morning after dipping on Monday.  The Market Vectors Gold Miners ETF (GDX) closed down by $0.26, or 0.5%, at $56.18 per share.  Notable decliners in the gold sector included AuRico Gold (AUQ.TSX), which slid 3.1% to C$9.25 per share.  AuRico’s sell-off was fueled by a downgrade from Dundee Securities, which cut its rating from Buy to Neutral and lowered its target price to C$13.00 from C$11.00 per share.  Dundee attributed its downgrade to “the near term commissioning risk” at AuRico’s Young-Davidson mine in Canada.

Other gold shares moving lower included Eldorado Gold (EGO) and Yamana Gold (AUY), which slipped 1.2% and 1.1%, respectively.  One notable gold stock that bucked the trend, however, was Randgold Resources (GOLD), which climbed 1.6% to $118.01 per share.  Randgold reported a record annual profit of $433.3 million in 2011 and raised its annual dividend by 100% to $0.40 per share.

Silver fared better than the gold price yesterday, as it finished near unchanged at $33.67 per ounce.  Gold’s sister precious metal initially fell to $32.90 per ounce as the U.S. Dollar Index reached its intra-day high, but rebounded as the greenback pared its gains.  On a year-to-date basis, the price of gold and silver remain higher by 10.0% and 21.4%, respectively.

The dollar advanced Monday amid yet another stumbling block in the Greek sovereign debt crisis.  Euro zone meetings to discuss the next tranche of financial aid to Greece were postponed due to disagreements over proposed austerity measures.  UniCredit Bank’s chief economist, Erik Nielsen, warned in a note to clients that “The Greek negotiations are getting down to the wire, with probably no more than one or two weeks left to get all the agreements in place if we are to avoid a messy default in March.”

As for the impact of the debt crisis on the gold price, Royal Bank of Scotland analyst Nikos Kavalis noted that “It’s been a bit of a rollercoaster, the relationship between gold and the euro. One day it’s positive, one day it’s negative.  But this morning, dollar strength, or euro weakness, is clearly affecting gold.”

Kavalis went on to say that “Safe-haven buyers still exist, they’re just far less of a force that they were at the peak of the sovereign debt crisis.  For the time being, we see gold over the next few months appreciating with other commodities…Its inflation-hedging properties, its anti-ultra loose monetary policy (qualities) are in our view what will drive gold. Risk in the market is one of the supporting factors, but the monetary policy outlook is really the key factor.”