Gold is fading

After yesterday’s rally in the gold price, gold is fading. As mentioned yesterday, physical demand has slowed over the past fewdays, which could drain some support for gold. In fact, with the rally in the gold price yesterday towards $1,340, gold demandfrom China seems to have eased already. This is evident in the SGE premium, which overnight dropped from around $10/oz yesterday to $7/oz this morning. This premium is down from almost $20/oz on 15 October when gold was trading below $1,290. As a result, from a tactical perspective, we believe that price rallies should be sold
into on approach of $1,450.

We maintain it will be difficult for gold to sustain a rally in an environment where investment demand via the ETFs is weak, and physical demand in Asia falls away on price rallies. That said , we would expect physical demand to pick up below $1,300, as it did around 15 October. Furthermore, US bond yields have decline d sharply since yesterday,
with the 10-year government bond trading at 2.49% this morning, down from 2.75% less than a week ago—lower bond yields are supportive for gold. This in our view, combined with physical demand that strengthens below $1,300, makes shorting gold even more risky when the price is below $1,300.

Gold support is at $1,305 and $1,283. Resistance is at $1,330 and $1,346. Silver support is at $21.20 and $21.01, resistance is at $22.10 and $22.20.

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