The yellow metal rode the wave of macroeconomic woes last week to set a new all-time high close to $1,595 as it added around 2.5% in weekly terms.
Despite the strong start to the week, gold declined during the Thursday and Friday sessions as traders opted for profit taking on the new record price. It then recovered some losses after US annual core inflation, which excludes food and energy, for June rose to its highest level since January 2010.
“High core inflation … reduces the chances of more (US monetary easing) and should support the dollar,” said Carsten Fritsch, commodity analyst at Commerzbank.
Gold advanced for the second consecutive week due to economic worries. Market sentiment towards the yellow metal also buoyed up as latest Chinese macroeconomic data surprised to the upside.
Suki Cooper, analyst at Barclays Capital, attributed the recent rise to the aftermath of Moody‘s downgrade of Ireland‘s credit rating and also the lack of direction from US Fed policymakers regarding the debt ceiling. “Gold prices continue to flourish amid the macro uncertainty as a flight to safety boosts interest,” she noted.
However, Neil Gregson, of the JP Morgan Natural Resources fund, points out that once the US economic recovery is more stabilised and interest rates go up, “that is going to be a significant headwind for gold.”
“We think that gold may top out here for a while and pull back to $1,520-1,540 before an assault on the $1,600 level,” said analyst Ian O’Sullivan at trading firm Spread Co.
A Reuters poll last week showed analysts expect gold prices to average $1550/oz in 2012.
Technical analysts indicate gold could rise above $1700/oz based on Fibonacci numbers.
