Gold hovers around $1,200; demand and dollar concerns may weigh on prices

Nov 24, 2014 - 3:45 AM GMT
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The gold price was aided by the surprise rate cut by People’s Bank of China(PBoC) on Friday, aiding the precious metal to hit above the $1,200 level. Prices continue to be seen hovering this level, although going forward demand concerns from the world’s top consuming nation of gold as well as a strong greenback may cap prices.

The PBoC’s cut its interest rates late last week, with the one-year lending rate now down to 5.6 percent and the deposit rate at 2.75 percent. The central bank also raised the deposit-rate ceiling to 1.2 times the benchmark.

Disappointing economic indicators as well as rising disinflationary pressures from China prompted easing measures from China’s central bank, as the country prepares for lower growth rates following years of double-digit growth.

Although the news helped gold rally to a high of $1,208 per ounce on Friday, analysts think that the initial support may wane, as easing measures typically suggests that the economy is weakening, which could soften demand for the precious metals.

“While today’s rate cut may be gold-friendly at the margin, ultimately the effect should be more muted than what the initial reaction might suggest,” commented UBS analysts in a research report last Friday.

“Strong GDP growth over the past several years has certainly contributed to the growth in China’s demand for gold…A robust GDP growth rate up ahead would therefore maintain this dynamic. Indeed, one of the downside risks we’ve highlighted is the potential for weak Chinese growth to dampen gold appetite,” said UBS analyst Joni Teves.

Elsewhere, the European Central Bank signalled its readiness to ease further as well on Friday, giving dollar a boost against the USD. The dollar index rose to a new high of 88.28, capping further gains in gold.

Gold was last seen at $1,200 per ounce, just a slight $1.60 lower from its Friday close. Silver is seen at $16.39, slipping five cents from Friday.

The PGMs rallied together with gold on Friday, with platinum adding $20 on the day to close at $1,226 and hitting a high of $1,235 per ounce. Current price is near Friday’s close at $1,224 per ounce. Palladium was up close to 2,5 percent on Friday, closing at $790 although today it slipped $3 to last trade at $787 per ounce.