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Newcrest, Silver Lake, Kingsgate take a hit on uncertain gold prices

It’s the question on everybody’s lips, but no one seems able to agree on the answer: where is the price of gold going?

The price of gold has dropped back 4.5% in the last week, down to US$1,326 per ounce. For a short time it looked like gold was on a path to recovery after hitting a low of US$1,180.50 in June, however the recent retreat has made already flighty traders and investors even more anxious.

Shares in Newcrest Mining (ASX: NCM), Australia’s largest listed gold miner, dropped almost 10% last week from $13.33 on Monday to close at $12.02 on Friday, while Silver Lake Resources (ASX: SLR) is down 15% and Kingsgate Consolidated (ASX: KCN) got walloped 21% in just five days of trading.

Much of the turbulence seems to stem from confusion on whether or not gold is continuing to recover, or if the current price is just a small pause in a downward trend. And even those dedicated to following gold fail to agree.

HSBC Global Research has raised its outlook on gold prices for the year to $1,446 per ounce from $1,396. According to Reuters, HSBC believes that “physical demand for jewellery, coins, and bars from China, especially” are a key driver for the demand outlook going forward.

Others are not so sure. Head of commodities for Goldman Sachs Jeffrey Currie told Bloomberg TV that easing tension around Syria and a tapering off in the US government’s bond-buying quantitative easing program are seen as reducing demand from speculators and traders over the near term.

Combined with an improving US economy going into 2014, Currie believes pressure will continue to push the price of gold down. Currie has a 12-month price forecast on gold of US$1,050 and doesn’t rule out the possibility of gold dropping below $1,050.

The conflicting views make it tough not only for investors, but for gold producers who are battling high production costs to maintain positive profit margins.

Foolish takeaway

It is true that you can ask a thousand people their view on something and you will get a thousand different answers. This is the state that the price of gold finds itself in and with so many influencing factors to consider it looks like things are not going to change any time soon.

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Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article.

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