Gold prices were wavering last Friday as confidence that Greece will secure a second bailout package grew, propping up the euro and slightly weakening the U.S. dollar.
NEW YORK (TheStreet (Symbol : TST) ) -- Gold prices settled marginally lower Friday as investors showed caution ahead of a holiday weekend and the fate of a second Greek bailout remained uncertain.
Gold for April delivery ended down $2.40 to $1,725.90 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,737.50 and as low as $1,718.60 an ounce, while the spot price was down $4.60, according to Kitco's gold index.
Silver prices settled 15 cents lower at $33.216 an ounce while the U.S. dollar index was essentially flat at $79.318.
Investors are keeping a close eye on Greece, with many growing increasingly confident that the country will be able to secure a new bailout package before a meeting of eurozone finance ministers on Monday, averting a disorderly default that could rock the financial markets.
"Early buyers met sellers as the day wore on," said George Gero, senior vice president with RBC Wealth Management. "It's a long weekend upcoming, and traders are reluctant to risk large capital for new positions in case, once again, eurozone headlines disappoint investors."
Overhanging the gold market was a mixed global demand picture. In the World Gold Council's 2011 Gold Demand Trends report, total gold demand was up just 0.4% to 4,067.1 tons. Indian demand suffered as the rupee was pummeled by the dollar. Jewelry demand was down 44% in the fourth quarter, 14% for the entire year. Bar and coin demand was up just 5% in 2011. The country still consumed 933.4 tons of gold in 2011 and coupled with China generated 55% of global jewelry demand and 49% of global demand.
"There are concerns that Indian gold demand might run into a bit of trouble this year, not only on account of continuing high prices, but owing to...the calendar," said John Nadler, senior metals analyst with Kitco Metals. "Simply put, there are fewer so-called 'auspicious' days in the 2012 Hindu calendar on which to go out and scoop up some yellow metal.'
China is making up for slowing Indian demand. The country consumed 769.8 tons in 2011. Jewelry demand was up 13% and investment demand grew to more than 250 tons. But the worry is if Indian demand slows, Chinese demand won't add the extra boost it has been to the gold price.
"Growth in Chinese demand is more than picking up the slack in Indian demand," argues Marcus Grubb managing director at the World Gold Council. China's demand grew 20% in 2011 and Grubb says it will grow by another 20% this year while Indian demand will most likely be flat or down. "What you have seen with China is it has come from a market that didn't really matter to now importing over 400 tons a year." Grubb expects the country to consume 930 tons of gold this year, matching India's demand.
While China has some pressure to keep buying gold, investors -- those on the futures market and those who buy the ETFs - have their work cut out for them as well. The OTC demand fell for the first time since 2008, down 7%, and ETF inflows were only 154 tons, less than half of 2010. "It was a very checkered year of selling gold by institutions and professional investors in the latter part of the year," says Grubb. "The growth rate in ETFs has definitely flattened out." Grubb says for the ETF market to grow there needs to be a deeper and broader ownership of gold. Currently not even 1% of monetary assets are invested in gold.
Mine supply was up 4% on the year, but total supply was down 8% and central banks bought almost 440 tons of gold, the highest figure since 1964.
Gold mining stocks were mostly lower Friday. Barrick Gold (Symbol : ABX) was falling 2.3% at $47.04. Barrick reported fourth quarter earnings on Thursday of $1.17 a share, which was below expectations, on revenue of $3.79 billion which beat estimates. The biggest gold miner in the world produced 1.81 million ounces at cash costs of $505 an ounce and expects to produce between 7.3 and 7.8 million ounces in 2012 for $520-$560 an ounce. Barrick is trying to grow production 20% in five years from 7.5 million to 9 million ounces.