Gold Prices Set to Drop as US Economic Recovery Gains Momentum

Gold prices are poised to drop next week, with several analysts saying an improving US economy could boost the US dollar, putting pressure on the metal's safe-haven investment allure.

As many as 14 of 25 analysts polled by a Kitco Gold Survey said they expected gold prices to go down. Six predicted that prices would go up while five analysts forecast prices to remain unchanged.

The number of Americans claiming government-sponsored unemployment benefits have fallen sharply.

A gauge of US manufacturing activity struck an eight-month high in early November, suggesting that the world's leading economy was gaining strength.

Meanwhile, US government data also showed that wholesale prices fell for a second straight month in October, a sign that the inflationary pressure on the economy was reducing.

Bernard Dahdah, precious metals analyst at Natixis told Reuters: "The gold price drop seen earlier this week has weakened the technical picture and the next important level to watch is obviously $1,200. Evidence that the US economy is improving will lift the dollar, putting further pressure on the gold price in coming weeks."

Phillip Streible, senior commodities broker at RJO Futures told Kitco: "What can I say about gold this week? It feels like it's a boxer trapped in the corner of the ring and Mike Tyson is throwing a left -- higher interest rates -- and a right - [US Federal Reserve] tapering -- directly at it. Geopolitical risks are nonexistent at the moment as well. Gold's best chance at a turnaround is damage done to the euro currency. When we saw news that the EU may make another interest rate cut, gold instantly popped several dollars. So I feel that's where it would get its bullish momentum from. Otherwise lower is the path of least resistance."

Commerzbank Corporates & Markets said in a note to clients: "The gold price is unlikely to rise noticeably in the months ahead. Persistent ETF outflows, low inflation rates and the debate about Fed tapering will probably act as an impediment to a price increase".

"But China's robust gold demand will also prevent a further price decline. Only in the second half of 2014 should a revival of investment demand cause the gold price to rise," the German bank added.

Spot gold was up 0.2% to $1,245 an ounce on 22 November. Prices were down 0.2% a week ago after logging two days of gains on the back of US Federal Reserve Vice Chair Janet Yellen's comments.

US gold futures for delivery in December rose on 22 November, finishing at $1,244.10 an ounce.

For the week as a whole, December gold futures dropped 3.4%.

Meanwhile, US gold futures for delivery in February, which will soon become the front month, ended at $1,244.60.

Central Bank Purchases

IMF data showed that central banks bought little gold in October. However, Turkey bucked the trend and reported a 13-ton increase in its gold holdings.

World Gold Council data showed that central banks in the emerging economies bought 93.4 tons of gold in the third quarter of 2013 to diversify their currency reserves.