Gold Weekly Forecast January 2-6, 2012, Fundamental Analysis

With the year’s trading mostly wrapped up, gold prices fell to the lowest since July last week, as the U.S. dollar strengthened against the euro on mixed signs of stronger economic recovery in the United States, dampening demand for gold as an alternative investment.

Over the past week, trading volumes have became thinner overnight with the year’s trading nearly complete, as investors started to fold up their positions before  the holiday season and now prepare to enjoy another long weekend with the New Year’s holiday on doors.

Economic data from theUnited Statesmainly showed mixed performance, with an expected drop in home prices in 20 metropolitan cities in the U.S added to signs housing market remains pressured down by foreclosures, while consumer confidence in the U.S bounced up to its highest level since April 2011.

Though 4-week moving average for jobless claims in the U.S dropped to a three-year low in the past week, a rise in number of Americans filing for unemployment benefits in the December 24 week highlighted the ongoing struggle of labor markets to seek safety in December.

In addition, the Chicago-based ISM signaled that business activity in the U.S expanded more than forecast in December, while an index of pending home sales in the U.S increased well above forecast in November, indicating the sector which first triggered the 2008 crash is picking up moderately.

Jumping to the 17-bloc euro area, the Rome-based Treasury of Italy did a nearly good job trying to raise nearly 20 billion euros at its two bond auctions in the past week.Italysold 9 billion euros on 179-day bills and 1.733 billion euros of 2012 debt at an auction on Wednesday, while sold 7 billion euros of longer-maturing debt the day after.

Debt crisis risks occupied the headlines as usual, sending the euro against the US dollar to its lowest level since September 2010 in the past week, as the slightly disappointing Italian auction of longer-term debt and lenders’ outclassed demand of ECB’s three-year loans spooked traders and failed to cool stoked markets before the year end.

Meanwhile, we continue to expect that gold prices will rise over the coming period amid speculation that lowest prices since July will probably boost demand from jewelers and investors for gold as a safe haven, nonetheless, price volatility could be seen next week with risks still surrounding the global economic recovery.

If truth be told, the outlook for global economies remains full of uncertainty, and that should continue to provide gold prices with the safe haven appeal, therefore, we expect Europe to dominate the headlines next week with the latest developments of the European debt crisis.