Gold price bounces back above $1,200

The gold price regained the psychologically important $1,200 an ounce level on Friday, recovering from a more than 3-year low hit yesterday following a decision by the US Federal Reserve to make cuts to its economic stimulus program.

In early afternoon trade on the Comex division of the New York Mercantile Exchange, the most actively traded contract for gold delivered in February gained $9.20 an ounce to $1,202.80, from highs near $1,207 set earlier in the day.

On Thursday the gold price dropped 3.5% or more than $40 an ounce to a more than 3-year low and the weakest closing level for the metal since August 2010.

The Fed surprised the market on Wednesday with the announcement of a scaling back of its $85 billion a month purchases under its quantitative easing program that has pumped $4 trillion of easy money into the US economy.

The central bank’s move boosted the US dollar and hurt gold which usually moves in the opposite direction to the greenback.

Scotia Mocatta in a research note warns of further downside pressure on the gold price from a technical perspective with “current price action very weak” and being “driven by year end cycle pressures”. The investment brokers see the risk of fresh lows before the end of the year “with next support seen at $1,155.”

MarketWatch quotes Naeem Aslam, chief market analyst at AvaTrade as saying gold falling below $1,200 yesterday did “not ring too many alarm bells” and that the support that formed in June when gold touched $1,181 intra-day “could be a buy opportunity.” Should gold fall through this level, however “certainly call all bets off.”

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