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Investors are waiting on the outcome of a 2 day Federal Reserve meeting which ends on Wednesday.  Here they are following any signs that interest rates will remain low, as that could put pressure on the U.S. dollar. The Tokyo Commodity Exchange, December, gold contracts climbed as high as 4,167 yen/gram, its biggest gain since mid-December. The gains initially propelled cash gold even though trading was slow during the Lunar New Year break. Japan has been notably absent in the gold market in recent years. This may be changing as concerns about the Japanese economy and continuing debasement of the yen may be leading to Japanese diversification into gold.  The scale of domestic savings in Japan remains enormous. This would be a new and potentially extremely important source of demand in the gold market which could help contribute to much higher gold prices. 

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Reuters report that the EU has agreed to freeze the assets of the Iranian central bank and ban all trade in gold and other precious metals with the Iranian Central Bank and other public bodies in Iran. According to IMF data, at the last official count (in 1996), Iran had reserves of just over 168 tonnes of gold. The FT reported in March 2011 that Iran has bought large amounts of bullion on the international market to diversify away from the dollar, citing a senior Bank of England official. Currency wars continue and are deepening. Many Asian markets are closed for the Lunar New Year holiday which has led to lower volumes. Of note was there was an unusual burst of gold futures buying on the TOCOM in Japan, which has helped the cash market to breach resistance at $1,666 an ounce.  Investors are also waiting for euro zone finance ministers to decide the terms of a Greek debt restructuring later today.  This would be the second bailout package for Greece.

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The duty hike in India has decreased gold prices by 1% in Mumbai as the rupee gained 0.5% against the dollar. Some jewellers think the recent duty may slow down demand and may result in a decrease in imports from the official channels of about thirty banks.  The increased tax may also lead to a tertiary market where people trade amongst themselves and not through dealers. Traders still do not see the hike dampening the demand for the yellow metal.  India is the world’s largest importer of gold and its households have the largest holdings of the metal, according to data from the World Gold Council, although Chinese households appear to be catching up in their purchases of gold.

The world's biggest primary silver miner, Fresnillo, had flat silver production in 2011. Output is only expected to remain stable in 2012.  African Barrick Gold said on Wednesday fourth quarter gold production fell 11% and missed its annual production targets. Despite price rises seen in 2011, gold and silver mining is remaining static contrary to claims by gold bears that higher prices would lead to increased production and therefore increased supply. Geological constraints may be impacting mining companies ability to increase production of the precious metals. Standard Bank has said it lowered its average 2012 gold price forecast by 6 percent to $1,780 an ounce, but continues to expect prices of the precious metal to touch new highs in the latter half of this year.  "We maintain that gold will reach new highs this year but, given our dollar view, we believe that these highs will be reached only in the second half of 2012," the analyst said in a note. Standard Bank expects the U.S. dollar to gain strength, especially against the euro, over the next quarter. A few other banks have recently lowered price forecasts for gold, including ANZ and Credit Suisse – however the majority remain bullish on gold’s outlook for 2012.

The modern world depends on economic growth to function properly. And throughout the living memory of every human on earth today, technology has continually developed to extract more and more raw material from the environment to power that growth. This has produced a faithful belief among the public that has helped to blur the lines between human innovation and limited natural resources. Technology does not create resources, though it does embody our ability to access resources. When the two are operating smoothly in tandem, society mistakes one for the other. This has created a new and very modern problem -- a misplaced trust in technology to consistently fulfill our economic needs. What happens once key resources become so dilute that technology, by itself, can no longer meet our growth needs?  We may be about to find out.

Gold coin purchases gained 13% last year and will increase 2.7% in the first half. Purchases of gold bars increased by 36% to nearly 2,000 (1,194) metric tonnes, concentrated in China, Germany, Switzerland and Austria. East Asia demand for gold bars rose 53% to 456 metric tonnes. India rose 9% to 297 metric tonnes and western markets demand for gold bars rose 41% to 335 metric tonnes. Central banks increased net purchases by a massive fivefold to 430 tons last year, and may buy another 90 tons in the first half, GFMS said. Combined official holdings stand at 30,788.9 tons, data from the London-based World Gold Council show. “Attitudes among central banks haven’t really changed,” Thomson Reuters GFMS annual survey said. “There’s still that desire to come into the gold market to diversify some of the assets away from foreign exchange and to boost gold holdings.” The Thomson Reuters GFMS annual gold survey also predicts that gold will struggle in the first half of the year, increasing in the later half towards $2,000. It also says the gold bull market is losing steam and predicts an end to the run as economies recover next year and interest rates begin to rise.

Although gold had its largest drop in the last 2 weeks on Friday, (-1.6%), it was 1.3% higher on the week and trading higher this morning.  Many analysts feel that current sovereign, macroeconomic and geopolitical risks are not reflected in gold's price. Friday's news of France's loss of its AAA rating has put the European Financial Stability Facility (EFSF) at risk. The Eurozone economy resembles a large ship sailing in rough seas since France fund's 20% of the EFSF fund and 8 other members were also downgraded. This will almost certainly lead to the EFSF's downgrade which would result in the fund too paying more to borrow as credit costs rise.  There are icebergs lurking in increasingly murky Eurozone waters. The European downgrades were long expected and may have been priced in the markets. The risk of a non orderly Greek default and of contagion in the Eurozone remains and is not priced into markets. It would lead to the euro falling sharply against other fiat currencies and particularly against gold.

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