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Safe haven demand helps gold reclaim $1,200 level

Gold managed to recapture the US$1,200/oz level today as safe haven buying intensified amid another massive sell off in equity markets in Europe and the US following mixed news from China and bearish statements from the governor of the Bank of England

Mervyn King.

The Bank of England today slashed its growth projections for the UK economy from May’s estimate of 3.4% to 2.5% for 2011, which would then rise to 3% in 2012. In his comments, King said the recovery would be “choppy” and told banks that the Special Liquidity Scheme designed to bolster the banking sector would not be extended beyond the current three year limit.

China said its CPI (consumer prices index) rose to 3.3% in July from 2.9% in the previous month, eclipsing its full year target of 3%. Investors were concerned that higher inflation could prompt the government to introduce further monetary policy tightening measures. Earlier this month, China reported a 3.1% decline in crude imports in July.

Gold climbed to US$1,206/oz, but silver and platinum retreated to US$18.08/oz and US$1,535/oz respectively.

Major mining stocks were in decline today. Gold miner Randgold Resources (LON:RRS) was an exception, climbing 1.7%. Silver miner Fresnillo (LON:FRES) and platinum miner Lonmin (LON:LMI) lost more than 2.5%. African Barrick Gold (LON:ABG) declined marginally.

Specialty chemicals firm Johnson Matthey (LON:JMAT) moved down 1.6%.

Midcaps also turned negative. Gold miner Petropavlovsk (LON:POG) and Aquarius Platinum (LON:AQP) retreated 1.5% and silver producer Hochschild Mining (LON:HOC) lost 1%.

Africa focused gold miner Pan African Resources (LON:PAF) outperformed the sector, rallying 6%.

Junior diamond miner Stellar Diamonds (LON:STEL) moved in the opposite direction, slipping 10%, while South American based explorer Mariana Resources (LON:MARL) lost 5.5%.