Speculation that Cyprus was readying the sale of its excess gold reserves put the gold price under early downward pressure last week, with investors concerned that other countries could follow Cyprus’s lead to reduce debt burdens.

While downward momentum gathered pace as technical levels were breached late in the week, such a debt reduction approach seems unrealistic given the small value of sovereign gold holdings relative to debt, even for large holders like Italy. Reports of gold price downgrades by some market analysts added to the bearish tone for precious metals and despite Cypriot authorities’ denial of the gold sales rumors, the possibility of such a precedent made investors wary.

Downside surprises from both US retail sales and consumer confidence helped partly reverse the speculation of an early exit from quantitative easing that some reading the FOMC minutes released earlier in the week were led to believe. Weaker-than-expected Chinese GDP and industrial production data released earlier today are likely to see commodity prices including gold remain subdued as investors revise their expectations for Chinese consumption. [Gold ETFs Plunge]

However, with early signs of deterioration in US economic activity appearing and ongoing Eurozone weakness likely to keep central banks firmly in aggressive stimulus mode, the declines in precious metals prices seem exaggerated.

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