Gold price below $1,350 last week has spurred renewed physical buying interest

Gold continues to find cause for support. The Fed minutes of the their FOMC meeting earlier this month indicated the FOMC considered (but decided against it) targeting longer dated yields irrespective of the amount of bond buying necessary. The minutes further indicated the FOMC in general agreed that more liquidity is necessary for the US economy. They moved their growth forecast lower and unemployment forecast higher. Higher unemployment and lower growth implies very accommodative monetary policy in 2011.

Concerns remain over European sovereign debt, with 5y CDS rising for Spain, Portugal and Ireland yesterday - despite the Irish bail-out plan. These concerns are set to weigh on the euro. Credit concerns are also set to benefit gold. Based on the physical market, gold remains a buy on dips. We believe sovereign credit risk in Europe, combined with the physical market should see gold in euro-terms outperform gold in dollar-terms for the time being. We've seen strong physical selling and scrap gold coming to market during the first two weeks of November as the gold price pushed above $1,400.

However, the latest decline in the gold price below $1,350 last week has spurred renewed physical buying interest. Our Standard Bank Gold Physical Flow Index (GPFI) has jumped into positive territory after lingering in negative territory earlier this month (see Commodities Daily dated 23 Nov’10). The return of buying interest in the market is an indication that the physical gold market is slowly adjusting to the higher gold price which now sees a “higher low” in the gold price as a buying opportunity. Long-term this is a bullish sign. We continue to expect gold physical demand to prevail on dips into January. Since Monday gold in euro-terms has surged Eur30 higher. As pointed out on Monday, we believe sovereign credit risk in Europe, combined with the physical market should see gold in euro-terms outperform gold in dollar-terms for the time being.

Gold support is at $1361 and $1,345. Resistance is at $1,388 and $1,397.

Comments

Post a Comment

Popular posts from this blog

Gold edges up on weaker dollar, dovish U.S. Fed policy bets

Image
 Gold edged higher on Monday, helped by a weaker dollar and expectations that the U.S. Federal Reserve will reiterate its dovish monetary policy stance this week. Spot gold was up by 0.1% at $1,943.58 per ounce. U.S. gold futures rose 0.1% to $1,950.10 per ounce. “Gold is firm on the basis that the Fed could adopt a further dovish message with respect to average inflation targeting,” said Michael Hewson, chief market analyst at CMC Markets UK. “If you want to have a policy of average inflation targeting, you’re going to have to go into detail as to how you are going to arrive at that particular outcome.” The dollar retreated on Mond ay, bolstering gold’s appeal for investors holding other currencies, ahead of the Fed’s policy decision due on Wednesday. “If inflation forecasts remain at 2% or below, this could offer gold a tailwind as the zero-yielding metal thrives in a low-interest rate environment,” said FXTM analyst Lukman Otunuga. Market participants are also wai...
Read more

For the gold price, two outcomes are possible.

Image
For the gold price, two outcomes are possible. First is a return to or near the April low ($1,277.40). Second is a drop to a lower low, $1,240 - $1,260. Yet a third possible outcome is that the June and December lows were not a double bottom and one further drop may come. I account that the least likely, and look for a low here by the end of the week, but I'm no more'n a nacheral born durnd fool from Tennessee, so what do I know?   You'd think that an institution charged with promoting the gold industry would produce reports that at least cast the best light on gold's prospects. You'd think wrong, if you're thinking about the World Gold Council. They've been negative on gold for, oh, the last 14 years or so. Today they issued a report that contained a nugget about Chinese business using physical gold as collateral for bank credit ($40 bn worth) but they managed to tease a gloomy forecast even out of this inventive monetary use. That and bad ...
Read more

The price of gold advanced as high as $1,603.40 per ounc

Image
The gold price broke out to a new all-time high above $1,600 per ounce Monday morning, rising for the eleventh consecutive trading session. The price of gold advanced as high as $1,603.40 per ounce before backing off to trade just the $1,600 level. The yellow metal gained on the back of a surge in borrowing costs for Italy, the latest European nation to see its bond market come under heavy selling pressure. The lack of a deal to raise the $14.3 trillion debt ceiling also helped boost gold prices. The eleven-day rise in the gold price is the longest winning streak since January of 1980. The gold price delivered another noteworthy performance last week, climbing 3.2% on its way to a series of fresh record highs. With Monday’s advance, the gold price extended its monthly and year-to-date gains to 6.6% and 12.5%, respectively. Last week’s two-day Congressional testimony by Chairman Ben Bernanke on the economy and monetary policy revealed that the Fed remains open to the...
Read more