GOLD Prices: Has The Rally Run Out of Steam?

After outperforming all major asset classes with a massive 20% advance in the past two months, gold prices have given back about one-quarter of that gain over the past week. Stronger-than-expected U.S. employment data for November and disappointing economic news in Japan and other parts of the world have led to the recent selling pressure. We believe that the current setback will prove only temporary, with the price of the yellow metal embarking on a new leg up in the near term. Looking out to 2010, however, the story will be different, as some of the favourable fundamentals underpinning gold prices will fade to some extent, taking the price of gold down to a new plateau. To the extent that prices rebound from their current level of about US$1125 per ounce, the more severe the medium-term adjustment is likely to be.