Gold Investor Index Slips to 5-Month Low

Gold bullion hovered near $1580 per ounce Friday morning, broadly in line with where it started the week, as stocks edged higher and the US Dollar weakened ahead of the publication of the latest US nonfarm payrolls and unemployment rate data.

Gold in Sterling meantime dipped below £1050 an ounce by lunchtime in London, while in Euros it fell towards €1200 an ounce as both currencies gained against the Dollar.

"The gold price is currently under pressure from two sides," says today's commodities note from Commerzbank, citing heavy outflows from gold exchange traded funds since the start of the year as well as less bullish positioning by speculative traders on the New York Comex.

Silver meantime dipped below $28.80 this morning but stayed within a tight range while other commodities were also broadly flat and major government bond prices dipped.

In Washington, President Obama has been dining with key lawmakers from both major parties this week, and plans to do the same next week, as part ongoing negotiations over the US budget.

On Thursday, Obama had lunch with, among others, Paul Ryan, chair of the House Budget Committee and architect of the so-called 'Ryan Plan' which would see changes to Medicare and Medicaid programs as well as the 2010 health care legislation known as 'Obamacare'.

Last Friday Obama signed into law the so-called sequester that was originally passed as part of the August 2011 debt ceiling deal.

"There is increasing talk of another 'grand bargain' being in the cards," says Ed Meir, metals analyst at brokerage INTL FCStone.

"Should an accord be reached, we could see yet another round of selling in gold, as the 'deficit prop' that has been instrumental in the bullish argument for the precious metal will look somewhat more wobbly."

On the currency markets, both the Euro and the Pound ticked higher this morning, ticking back above $1.31 and $1.50 respectively, after both the Bank of England and the European Central Bank left interest rates on hold yesterday. In London, the BoE also voted not to extend its quantitative easing program by a further £25 billion to £400 billion.

The British public meantime expects inflation to average 3.6% over the next 12 months, according to the latest quarterly Inflation Attitudes survey published by the BoE this morning. The previous survey three months ago reported expectations for inflation of 3.5%.

Since the BoE began its quantitative easing program in March 2009, inflation has been above the 2% target in 41 out of 47 months.

The ECB meantime left its main policy rate at 0.75%, the record low to which it was cut last July.

"In the medium term, we continue seeing the beginning of a gradual recovery [in the Eurozone economy]," ECB president Mario Draghi told a press conference yesterday.

"The ECB seems ready to accept an excruciatingly slow recovery and very low inflation [and] will continue to sit on its hands," says Nick Kounis, head of macro research at ABN Amro in Amsterdam. 

"We don't believe that the Eurozone economy will recover and we also believe that inflation will fall dangerously below the 2% target," adds today's currency note from Standard Bank.

"If that's correct, the ECB really needs to be easing policy, not just through rate cuts but also in other ways to try to get credit flowing to firms and consumers again."

The world's number two gold buying nation China saw its trade balance post an unexpected surplus last month, as exports grew more strongly than expected year-on-year and imports fell more sharply, according to official data published Friday.

Chinese gold imports from Hong Kong meantime fell to 51.3 tonnes in January, less than half the volume of the previous month, according to Hong Kong customs data published Friday. Just under 24 tonnes of gold flowed the other way, leaving Chinese net imports from Hong Kong, a major conduit for bullion going into China, at 27.3 tonnes, a 3.7% drop from a year earlier.

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Adrian Ash runs the research desk at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern and FT Deutschland; Italy's Il Sole 24 Ore, and many other respected finance publications.

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