2011-10-04

Gold weakness and the strong level of dip-buying that remains in two key emerging markets

The gold price advanced over 2% Tuesday morning, climbing $48.90 to $1,669 per ounce. The price of gold has been mired in a correction that at one point wiped away over 20% of its value. Since touching $1,533 per ounce on September 26, gold has bounced over 8% to its current level above $1,650 per ounce. Heavy liquidation in the broader stock and commodity markets, as well as rumors of outsized hedge fund selling, has pressured the Gold.

While last month’s sell-off in gold may have rattled many investors, that has not been the case in China, at least according to Scotia Mocatta.

In a note to clients on Monday, the firm discussed the Gold weakness and the strong level of dip-buying that remains in two key emerging markets.

“Over the past 2 weeks commodities, including gold, have been in the crusher, although to be fair losses in non USD currencies have been significantly less than those that have been suffered at the hands of the strong USD,” analysts at Scotia Mocatta wrote. ”Although the ranges have been more vicious than normal this type of trading pattern has been seen many times before i.e. ETFs lose inventory and people liquidate profitable positions in gold to cover off margin calls elsewhere but when all is said and done the gold as a currency players and the gold as a physical store of value buyers use these ‘dips’ as ideal buying opportunities and this is exactly what has happened and is happening yet again in the gold market.”

The firm went on to note that “Physical into Asia (China) continues to be as strong as an Ox and with Diwali due to fall on 26th October this year India will not be far behind. Couple that with a nervous end / beginning to the quarter and it’s no wonder that gold is back at $1660 as I write and more importantly leading the way on the crosses with strong recoveries across the board.”

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