Physical market resists a higher gold price


While the political turmoil in the MENA region is inflating investment demand for gold, physical demand for the metal has been lacklustre. The rise in investment demand is evident in the increase in the net long non-commercial gold position in the physical market over the past 4 weeks, but also in the steady rise in gold ETF holdings since the start of February.

However, the physical market is in a seasonally weak period. With gold approaching $1,440, we see physical selling consistently outpacing physical buying. The intensity of selling activity as a result of resistance to a higher gold price, is not yet as strong as the same period in 2009 and 2010. The main difference between now and the two previous years, is buying interest continues to appear on dips at the moment (currently dips towards $1,400), which is offsetting some of the selling pressure.

The move in the physical market, from providing support in January and early February, to providing resistance, is evident in our Standard Bank Gold Physical Flow Index (GPFI) which has recently declined from close to all-time high levels during the middle of February to negative territory last week (see graph). A negative value indicates we observe a physical market that is on net a seller of gold, while a positive value indicates we observe a physical gold market which is
on net a buyer. Physical gold demand is weak and we are entering a period where rallies in gold are likely to attract more scrap and other gold selling. Our view on gold remains unchanged. We maintain that the metal could reach $1,500. While we still target $1,500 to be reached in Q3:11, MENA tension may push gold towards our target earlier. Tactically, where we saw fundamental
support, and value, below $1,340 at the end of January, we now see fundamental support below $1,370.

The main reason we do not bring forward our target of $1,500 is the seasonal weakness in physical demand — we believe that resistance in the physical market has assisted in capping
rallies in gold the past two weeks — and that it may continue to cap rallies for a few more weeks

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 waiting
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