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Wholesale gold prices rallied above $1400 an ounce Friday morning, with analysts continuing to point to strong demand for physical bullion following gold's sharpest weekly price fall in over four years.

"Expect the market to sell into strength," warns bullion bank Scotia Mocatta, whose technical analysts see support for gold at $1309 an ounce, the February 2011 low.

Gold in Sterling meantime climbed to around £920 an ounce, erasing around half of its losses from Monday, as did gold in Euros which ended Friday morning in London around €1080.

Based on London Fix prices, gold in Dollars looked set for weekly drop of 8.4% by lunchtime in London, the biggest weekly drop since October 2008.

"We believe that despite the current turbulence, the long-term fundamentals of the gold market remain intact," says Marcus Grubb, managing director, investment, at the World Gold Council.

"Physical gold demand in India, China and Dubai is incredible because of the price fall."

In India, traditionally the world's biggest source of gold demand, imports could rise to more than 180 tonnes over the course of the second quarter, a 20% jump on Q1, Bombay Bullion Association president Mohit Kamboj said Thursday.

"There is very good demand and the footfall [at stores selling gold] has increased multi-fold following weakness in gold price," he said.

Earlier in the week dealers in Hong Kong and elsewhere reported premiums opening up on physical gold as a result of increased demand and supply backlogs, while demand for physical gold among investors using the internet has also surged.

Japan's biggest online broker Dot Commodity saw trading volumes for gold jump fourfold on Tuesday compared to a day earlier, it reported in a press release, while traffic to BullionVault, the world's biggest physical gold market online, was its highest since September 2011, when gold set its all-time record high.

Looking ahead to next week, of 34 gold analysts surveyed by Bloomberg, 15 said they expected gold to go up next week, 14 said they see it going down and five declared themselves neutral, the news agency reports today.

Silver meantime climbed as high as $23.90 an ounce this morning, before easing back, while other commodities also ticked higher after sharp falls earlier in the week that saw oil extend its losses for April.

On a weekly basis, silver recorded a weekly loss of 13.6% at Friday lunchtime's London Fix.

"Commodities have been sending [a negative] signal on growth for a while," says Mohamed El-Erian, co-chief investment officer of Pimco, which manages $2trillion of assets, "and now [it is] even louder."

"Gold and silver, the front-runners since 2009, are likely over the next few years to be among the weakest of all the commodities," says a note from Barclays, which has cut its average per ounce gold price forecasts to $1483 for 2013 and $1450 for 2014, down from $1647 and $1600 respectively.

"We see the outlook in the near term as fragile...gold will need to find support from the physical market in the near term, but investor interest continuing to unravel poses the largest downside risk for prices."

Though they remained down on the week, European stock markets ticked higher this morning following gains in Asia, despite losses on US markets yesterday.

"In the short term, US stocks will unlikely see a major correction given solid economic growth and attractive valuations," says a note from Citi.

"Challenges in the second half may include sluggish growth in Europe, bond buying slowdown by the Federal Reserve and budget negotiations in the US."

Ben Traynor
BullionVault

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it

U.S. dollar gold prices continued to hover around $1580 an ounce Monday morning, in line with last week's trading, while silver dipped back below $29 an ounce after making slight gains in Asian trading.

Sterling and Euro gold prices were also flat, hovering around £1060 and €1215 an ounce respectively.

"[Last week] was a relatively uneventful week for gold," says a note from precious metals refiner Heraeus, citing a lack of "impulses to influence the metal".

European stock markets ticked lower this morning with the exception of the FTSE, following Friday's announcement by ratings agency Fitch that it has downgraded Italy by one notch to BBB+.

On the currency markets the Euro hovered around $1.30 against the Dollar this morning, after dropping 1.4% Friday following the release of better-than-expected US jobs data and the Italy downgrade news.

Friday's US nonfarm payroll report showed 236,000 jobs added last month, while the unemployment rate fell from 7.9% to 7.7%.

"Gold prices have built in the view that the US recovery is on a good footing," says Societe Generale commodity strategist Jeremy Friesen, "and by the end of the year we should see the Fed exiting the stimulus, which should be bearish for gold."

January's nonfarms figure however was revised lower to 119,000 jobs, below December's 196,000 and the lowest figure for number of jobs added since June last year.

"This is the third time since the recession began that hiring has accelerated, only to fizzle out a few months later," says INTL FCStone metals analyst Ed Meir.

More importantly, while the recent employment gains have been encouraging, overall employment is some three million jobs below the peak reached in January 2008...it is not surprising to see why most economists see the Fed continuing to provide the economy with support."

The so-called speculative net long position of gold futures and options traders, calculated as the difference between bullish and bearish contracts held by hedge funds and other professional money managers, fell to its lowest reported level since December 2008 in the week ended last Tuesday, according to weekly data published Friday by the Commodity Futures Trading Commission.

Gold exchange traded funds meantime continued to see net outflows last week. The world's largest, the SPDR Gold Trust (ticker: GLD), saw its holdings drop to their lowest level since October 2011 Friday, at 1239.7 tonnes.

"ETFs remained net sellers, although their aversion to the metal does seem to be easing," says a note from Standard Bank.

"The week saw 21.9 tonnes liquidated from the holdings [of all ETFs tracked by Standard Bank], significantly lower than the previous week's 56.7 tonne loss (which was a 12-month record). Total holdings are now at 2567.7 tonnes, down 152.7 tonnes since the beginning of the year."

"[ETF] holdings remain vulnerable given prices are trading sub $1600," adds Suki Cooper, precious metals analyst at Barclays.

"[That said,] macro uncertainty continues to linger, and gold's safe haven appeal could return, particularly given the debt ceiling debate scheduled for May, but should investor interest continue to dwindle, physical demand and official sector appetite are likely set the floor for prices."

Over in China, the world's number two gold consumer, industrial production and retail sales both grew at a slower pace than analysts forecast in February, according to official data published over the weekend.

"Fixed asset investments continued to be the key driving factor[ for China's growth]," says a note from Credit Suisse.

"This is consistent with our view of a narrow-based recovery. So far, there is no evidence that the growth momentum that has been primarily driven by local government investment projects has spilled over to other sectors...without a broader-based improvement of activities, a strong rebound of growth momentum will likely still be missing."

Producer prices in China fell by more than expected, while by contrast consumer price inflation ticked higher to 3.2%, up from 2.0% a month earlier.

Chinese gold production meantime rose by nearly 25% to just over 30 tonnes in January, according to figures published by the China Gold Association. Data published last week show China's net gold imports from Hong Kong that month fell to a three-month low below 30 tonnes.

Ben Traynor
BullionVault

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it