Growing fears of rising inflation and a weak dollar continue to benefit gold


Growing fears of rising inflation and a weak dollar continue to benefit gold and silver at the start of the week. Inflation-hedge buying is providing the main impetus for gold and silver, although a reduced appetite for risk is also playing its part. Chinese authorities raised reserve requirements over the weekend (to take effect on 21 April), the seventh consecutive increase since October last year. The move was not surprising off the back of March price data released on Friday which revealed that a) consumer inflation stands at 5.4% y/y, the highest level since August 2008, and b) producer inflation which also came in higher than expectations (consensus 7.2% y/y) at 7.3% y/y, indicating strengthening pipeline inflationary pressures.

Gold and silver have shrugged off the promise of more aggressive Chinese monetary conservatism. The reaction of platinum and palladium is in line with base metals, and could be ascribed to concerns over industrial demand in China should authorities continue to tighten monetary policy. Moody’s downgrade of Irish long-term bank deposits could further increase interest in Gold, in that it might return nvestor focus to the Eurozone debt situation and the threat of financial contagion. However, given the current lack of interest in PGMs, we would expect gold and silver to be buoyed the most by this news.

While gold and silver seem to be enjoying support it is worth noting some changes in speculative activity. According to the most recent CFTC data, net speculative length for COMEX Gold declined marginally, ending three weeks of consecutive gains. Given that the changes in speculative positions were minimal, we would not take this as a signal of a market turning
bearish on gold as yet, but do consider it something to keep an eye on. The dramatic increase in short silver positions over the past two weeks and last week’s fall in speculative longs do raise concerns that markets expect a correction in silver’s recent rally; this has pushed prices to record highs.

Gold support is at $1,471 and $1,463. Resistance is at $1,489 and $1,497.

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