Gold and Silver Outlook

Prices for gold and silver dropped lower to close on Thursday with modest gains early Friday as prices steady.

U.S. gold futures for February delivery gained $1.20 to $1,698.00 per troy ounce. The spot price of gold shed a modest $0.80 to $1,697.00 per troy ounce. Comex silver for March delivery gained $0.225 to $32.565 per troy ounce.

The FOMC’s decision to augment the current bond-buying program with an additional $45 billion per month took gold prices to a high of $1,725 per troy ounce this week, but the stimulus and the risk of inflation it could cause could not sustain a rally.

Several factors, including profit taking, sell stops in Asian markets that triggered last night, a strong dollar staving off foreign demand, and big market players exiting the market until the New Year are all likely contributory factors.

Both gold and silver have settle below critical psychological levels, $1,700.00 per troy ounce for gold and $33.00 per troy ounce for silver. Market action today anticipates a continued consolidation with a mixed bias that will leave gold and silver little changed before the weekend.

Demand for gold and silver is perceived as picking up in China once again. The Chinese government directly encourages its population to purchase gold and silver and the middle class in the country, the largest on the planet, are prime buyers. Imports to Mainland China from Hong Kong vary greatly by the month with levels not reported until afterward. Typically, dips in prices make gold and silver more affordable for holders of foreign currency and Chinese imports surge on low price points.

In 2011, Chinese demand for silver bars and coins spiked to 17,000,000 ounces, accounting for 8 percent of worldwide net purchases of physical silver. With several internal construction projects planned by the Chinese government to spur growth of the economy, industrial demand for silver is anticipated to pick up.

In the U.S., demand for gold and silver bullion has recently decoupled from market movement as the U.S. Mint broke records for American Gold Eagle and American Silver Eagle orders. That action has waned somewhat with this week’s developments, but the Mint broke records in November and the first week of December.

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