NEW YORK (TheStreet ) -- Gold prices were losing steam Friday on the back of a stronger U.S. dollar and as physical buying cooled ahead of China's New Year holiday.
Gold for February delivery was down $6.30 to $1,648.20 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,659.30 and as low as $1,645.60, while the spot gold price was down $9, according to Kitco's gold index.
Silver prices were shedding 8 cents at $30.42 an ounce. TheU.S. dollar index was up 0.3% at $80.32.
Gold prices were slipping from their recent 5-week high as a stronger U.S. dollar weighed on prices. Jon Nadler, senior analyst at Kitco.com, says that gold and the euro are still "holding hands," which means an inverse relationship to the dollar.
"We have to see how this goes into next week," says Nadler, "because a lot of the talks are ongoing with Greece and its creditors. The IMF still hasn't raised the money [nearly half a trillion dollars], so the market jury remains out as to just how sustainable this euro rally will be and what happens to gold in physical terms after the Chinese New Year comes to a conclusion."
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China has been a stronger buyer of gold, adding a huge support to the gold price. The country imported 389 tons of gold in the first 11 months of 2011, but many experts think this may have been strategic buying ahead of the Chinese New Year, which starts next week, and might slow after the holiday.
"Next week is likely to be a volatile week with China closed for the New Year holiday," says William Adams, head of research for FastMarkets.com, "so it may be that the markets consolidate while they wait to see what the mood is once China returns to work on January 30th."
The mood so far is mixed. China Securities Journal reported that there might be 900-1,000 billion yuan in new loans for January. This comes after reports that China is pushing its 5 largest banks to increase new loans by 5% in the first quarter. More money in circulation could help support gold imports, but on the flip side HSBC said that manufacturing in December came in at 48.8. That figure was better than November's data but under that critical 50 level that signals growth.
"If we don't manage to overcome the $1,700-$1,720 level," in gold prices says Nadler, gold could sink to as low as $1,400. "In addition, I think we will see some impact in the re-allocation process that the various funds have already embarked upon," which could lead to a lot choppiness in the price.
Wayne Lin, portfolio manager and investment strategy analyst for Legg Mason Global Asset Allocation, goes one step further. "Given where things are from a fundamental economics point of view, unless we have hyper inflation around the corner, there is a potential for downside risk."
