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Gold Prices 'Target $1200' Ahead of Fed, 'Paper Shorts' Battle 'Robust Demand, Falling Supply'

January 26, 2016
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GOLD PRICES edged higher on Monday morning in London, writes Steffen Grosshauser at BullionVault, holding close to a 7-session high at $1107 per ounce as a rebound in Asian stockmarkets faded in European and pre-US trade ahead of this week’s decision on Dollar interest rates from the Federal Reserve.
 
“If gold can stay above $1100 in the coming days,” reckons Mark To, head of research at Hong Kong’s Wing Fung Financial Group, “it may signal a further rebound, maybe even to $1200 in the coming months.”
 
“We believe the key reason for gold’s weakness is the near-record short [speculative] position in paper markets,” says a note from London bullion bank HSBC, “overriding robust physical demand and an outlook for declining supply.
 
“Gold short positions are increasingly vulnerable to short covering, threatened now by increased global risk levels.”
 
Data on positioning in Comex futures and options show hedge funds and money managers holding their bullish and bearish bets on gold unchanged during the week to 19 January.
 
Gold bullion held to back shares in the giant New York-listed SPDR Gold Trust (NYSEArca:GLD) last week rose to the greatest level since early Novembe, adding 3.4% since New Year as the gold price has gained 3.7%. 
SPDR Gold Trust (NYSEArca:GLD) bullion backing vs spot price
 
Silver ETFs in contrast have shrunk, with the iShares Silver Trust (NYSEArca:SLV) falling to its smallest size since mid-2012 as shareholders canceled 2% of its stock since New Year, even as the silver price has added around 1% in US Dollar terms.
 
“We see [silver’s] recent lows of $13.75 and $13.65 as key supports,” says a technical analysis from bullion bank Scotia Mocatta, “with 14.40 as pivotal resistance.”
 
Silver on Monday doubled the gain of gold prices from last week’s finishing level, rising above $14.25 per ounce on Monday morning but failing to touch Friday’s brief 2-week high at $14.34.
 
Major government bond yields meantime eased lower as oil prices fell back from Friday’s sharp rally after weak business sentiment data from Germany, the world’s fourth largest national economy.
 
Gold priced in Euros touched its highest levels since the start of November as the single currency slipped further following last week’s hint by European Central Bank president Mario Draghi that the ECB is likely to create additional QE at its next meeting in March.
 
“It is reasonable for investors to wonder whether Fed’s December rate hike was a policy error,” says Bob Michele, chief investment officer of J.P.Morgan Asset Management.
 
“Historically the Fed has raised rates because either growth or inflation was uncomfortably high. This time is different – growth is slow; wage growth is limited; deflation is being imported.”
 
Interest-rate futures currently put no chance on the Fed raising its key rate in this Wednesday’s decision.

Gold Prices Slip as Oil Jumps 17%, Equities Rise, Commodities Slump 'Forces Supply Cuts'

January 23, 2016
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GOLD PRICES retreated against all major currencies Friday in London, cutting the week’s gain versus the US Dollar to barely 0.5% as world stock markets rallied hard and crude oil extended its bounce from Wednesday’s new 12-year lows to more than 17%.
 
“Price is forcing supply to respond,” writes investment bank and bullion dealer ICBC Standard Bank’s Tom Kendall in a quarterly note on base and precious metals today, “[but] the pace of that response differs from commodity to commodity.”
 
Metals with low stockpiles relative to consumption, plus high production costs, “will turn first,” says the note, meaning copper and zinc will likely lead the 2016 upturn with aluminium and palladium last.
 
“Gold lies trapped somewhere in the middle,” says Kendall, thanks to its dual nature as both “commodity and currency.”
 
World No.1 gold miner Barrick (NYSE:ABX) said overnight that 2015 output was in line with the 190 tonnes forecast, but total debt was cut by 24% “through disciplined non-core asset sales, partnerships and free cash flow.”
 
Global gold mining output is now forecast to drop slightly in 2016, say specialist analysts Thomson Reuters GFMS, after setting new all-time records for 7 years running and reaching 3,155 tonnes in 2015.
 
US-based consultancy SNL Metals & Mining recently said that capital expenditure across the entire global mining industry fell 30% last year from the 2012 peak, with a further 12% decline in capex due by end-2017.
 
Although “the US interest rate environment should not be much of a threat to gold in 2016,” ICBC Standard Bank’s note says, cutting its average 2016 forecast 17% to $1060 – the lowest annual gold price since 2009 – “we don’t believe there is a convincing argument why the four-year downtrend should be reversed either.”
 
Back in Friday’s action, gold priced in the Euro held a 1.5% gain for the week as the single currency fell following comments from European Central Bank president Mario Draghi about the ECB’s “determination” to revive inflation, hinting at a new dose of QE money creation at the next meeting in March.
 
Major government bond prices eased lower, nudging 10-year US Treasury yields up to 2.07% from Thursday’s first dip below 2% since October.
 
With crude oil jumping almost $5 per barrel from Wednesday’s new 12-year lows to trade above $31 today, this year’s strong correlation between oil prices and stock markets so far signals that the financial markets “are focused on demand fears [and] recession,” says US investment bank Goldman Sachs’ Jeffrey Currie
 
“We think those fears are likely overdone,” he tells Bloomberg, because the issue is supply, not a collapse in demand.
 
“This really isn’t a sustainable [low] level” for oil prices, says US banking giant Citi’s head of Asia commodity research Ivan Szpakowski, “and the trade of the year will be when oil turns.”
 
“This year will be a settling-down time,” reckons Anil Agarwal, chairman of India’s No.1 metals miner Vedanta (LON:VED). “In 2017…zinc will recover the fastest and aluminium will be next.”

 

Gold Tight at $1100 as Barclays Bank Weighs Next Exit from London Bullion Market

January 21, 2016
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GOLD BULLION held in a $4 range either side of $1100 per ounce in London on Thursday, trading 1% below yesterday’s one-week highs as China’s stock market slumped once again, but European share steadied ahead of the Eurozone central bank’s latest comment on QE and sub-zero interest rates.
 
Keeping its main refinancing rate at a record low of 0.05%, and holding the deposit rate for commercial banks at minus 0.30%, the ECB’s president Draghi was due to give his post-decision press conference at lunchtime.
 
London bullion clearing bank Barclays – one of only 3 of the remaining 5 clearers to operate its own vault – meantime said it is considering a sale of its precious metals division, with a memo to staff also announcing a further 1,200 jobs cuts, primarily in Asia, on top of the 7,000 completed last year.
 
Currently with a global headcount of 135,000 according to internal HR documents, Barclays is a participating member through its London bullion division of regulated, daily benchmark the LBMA Gold Price, and is also a market maker – quoting prices to buy and to sell throughout the trading day – in wholesale spot, forwards and options.
 
Today’s news follows the exit from wholesale precious metals clearing, benchmarking and market-making of Germany’s Deutsche Bank in 2013, and the exit of Japanese trading house Mitsui from London and Hong Kong precious metals trading at the end of 2015.
 
Two weeks ago the Thomson Reuters news agency reported rumors – as yet unconfirmed – that Chinese-owned ICBC Standard Bank is buying Deutsche Bank’s now dis-used bullion vault in north-west London.
 
Last year, the words “gold” or “precious metals” appeared a total of 13 times in Barclays’ 348-page 2014 annual report – only once outside footnotes on the lawsuits, fines and regulatory changes faced by the bank. 
 
Average daily volumes of gold transfers between London’s five clearing members fell in late 2015 to a 10-year low by weight, down more than 50% by value from the peak of 2011.
Chart of London bullion market clearing members' average daily gold transfers
 
Almost 2,250 tonnes of gold have meantime exited London’s wholesale bullion vaults since the start of 2013, cutting the net inflows of the last decade to just 1,550 tonnes – scarcely half of 1 year’s current global gold mining output.
 
Overnight in Asia on Thursday, “An early session dip below $1100 was short-lived,” says a note from Swiss refining and finance group MKS’s Australia team, “as Chinese interest kept the metal buoyant.”
 
With global prices trading at their highest level in 11 weeks as Shanghai closed, the Chinese premium above Dollar quotes for London settlement rose above $2 per ounce, just below the average incentive offered to importers over the last 18 months.
 
At the retail level, “There’s a bit of speculative demand,” Reuters today quotes one Hong Kong dealer, “but not huge.”
 
Indeed, China’s economic slowdown, the newswire quotes another Hong Kong dealer, means demand will likely stay weak ahead of next month’s Chinese New Year – typically the strongest period for household demand in the world’s heaviest gold importing nation.

'Safe Haven' Gold Bullion Over $1100 as Stocks Sink, Commodities Glut Worsens

January 20, 2016
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GOLD BULLION rose against all major currencies Wednesday morning in London, trading above $1100 per ounce for the time in 7 sessions as world stock markets, industrial commodities, corporate bonds and non-US currencies all sank yet again.
 
Tracking New York’s late turnaround yesterday, Asian stock markets sank by 3%, with European equities losing the same by lunchtime.
 
Gold priced in British Pounds jumped to a 7-month high as Sterling fell once more despite stronger-than-expected UK jobs data.
 
Gold bullion priced in British Pounds Sterling per ounce
 
Rising alongside what analysts and headline-writers today called “safe haven” gold bullion, 10-year US Treasury bonds pushed the yields offered to new buyers down to 7-month lows beneath 2.0%.
 
In contrast to gold – now rallying over 5% from new 6-year lows at $1046 per ounce hit at the start of December – crude meantime hit new 12-years lows beneath $28 per barrel after the International Energy Agency warned yesterday that the worsening glut could see global oil markets “drown in oversupply”.
 
The drop in energy prices risks worsening the supply-glut in industrial metals, warns consultancy Oxford Economics, as it delays the pressure on miners to cut production.
 
“How much longer do you think we’re going to see some of this production remain around before it’s forced to be taken out of the market?” asset-management giant BlackRock’s £2 billion mining fund boss Evy Hambro apparently demanded of commodities giant Glencore (LON:GLEN) on a call last month, according to the Financial Times.
 
GLEN lost another 5.6% on the London Stock Exchange today, extending the stock’s loss since floating in 2011 to more than 85%.
 
Silver prices also rose with gold bullion Wednesday, adding 1.5% from last weekend to touch $14.17 and matching the highest Dollar level of the last two weeks.
 
But with the largest exchange-traded gold trust vehicle seeing investor interest unchanged Tuesday, the iShares Silver Trust (NYSEArca:SLV) shrank again, now shedding more than 300 tonnes since this time last month, equivalent to 12% of average monthly world mine output.
 
The giant SPDR Gold Trust in contrast (NYSEArca:GLD) has added 28 tonnes of bullion over the last month to back its growing number of shares in issue – equal to some 10% of average world monthly mine output.
 
Peaking at the end of 2012 with 1,350 tonnes, the GLD has since shrunk by 704 tonnes, equal to an extra 7.5% of the world’s record-high gold mining output over the last 3 years.
 
“Gold will likely continue to benefit from safe haven status should equity weakness persist,” says an overnight Asian trading note from one bullion desk.
 
“The ability of gold to cut the bulk of [its recent] losses,” says a separate note from global investment and London bullion bank HSBC’s analyst James Steel, “[plus] the persistence of risk sentiment and comeback in the EUR-USD [exchange rate] leads us to continue to expect further gold gains.”

Gold Prices Slip, 'Weaker' Than Equity Slump Warrants as China Confirms GDP Slowdown

January 19, 2016
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GOLD PRICES slipped 0.5% from last week’s finish as New York traders prepared to return from the long Martin Luther King weekend Tuesday, slipping to $1084 per ounce as world stock markets rose – and crude oil bounced 5% from new 12-year lows – despite the weakest official GDP data from China in a quarter-century.
 
Local officials last week “admitted” to faking prior data, Communist Party newspaper the China Daily reported, blaming the current downturn on a shift to more accurate figures.
 
Annualized GDP growth in the fourth quarter fell to 6.9% on Tuesday’s data, with December’s year-on-year growth in retail sales, industrial production and urban investment all missing analyst forecasts as well.
 
“With three full weeks until the Chinese New Year, a key buying time for precious metal jewellery and investment products, demand ought to continue to be strong,” says Japanese conglomerate Mitsubishi’s analyst Jonathan Butler, looking at consumer offtake of platinum – rallying Tuesday from a new record-wide to discount to gold prices after touching fresh 6-year lows at $817 per ounce yesterday.
 
“After that, without the cushion of seasonal Chinese demand, platinum could be lacking yet another element of support,” says Butler, adding that with commodity and financial markets falling so badly so far in 2016, “it might reasonably be asked why gold has not done better than the 2.5% appreciation in Dollar terms that it has achieved.”
 
“Possible reasons include turnover on the Shanghai Gold Exchange,” Mitsubishi’s weekly report says, pointing to the 5% year-on-year drop in trading volumes for high-grade kilobars during 2016 to date – “continuing the trend seen in the last quarter of 2015 and perhaps suggesting an underlying malaise given the country’s economic slowdown and equity market turmoil.”
 
Trading volume in Shanghai’s main wholesale gold contract today fell to a new 2016 low, equal to 16.3 tonnes at the closing price as gold slipped 0.5% versus the Yuan.
 
Compared to US Dollar quotes for gold in London’s bullion market – historic centre of the world’s wholesale trade – Shanghai’s main contract slipped to a premium of barely 30 cents per ounce, the worst incentive for new imports since October’s negative levels.
 
“The key theme for 2016,” said US investment bank Goldman Sachs’ global head of commodities research Jeffrey Currie in a note Friday, forecasting an upturn later this year, “will be real fundamental adjustments that can rebalance [natural resources] markets to create the birth of a new bull market.”
 
But “we remain in the wrong type of global economy for commodity prices to perform well,” counters bank Macquarie, saying that crude oil supplies worldwide must wait until 2017 “[for] the first year in five that results in an annualised inventory draw[down]”.
 
Crude oil today rallied 5% from Monday’s new 12-year lows beneath $28 per barrel, while West European stock markets followed Asia sharply higher, rising over 2%.
 
The Euro retreated slightly against the Dollar on the FX market, buoying the price of gold bullion for investors across the 19-nation currency union level with last week’s close at €998 per ounce.
 
Gold priced in Sterling also held firm above £760 per ounce as the Pound slipped following a speech from Bank of England governor Mark Carney noting that global economic weakness, and slow inflation, look likely to delay any UK interest rate rise.
 
UK inflation last month accelerated to its fastest pace since October 2014 when fuel and food are excluded, the official UK data agency said Tuesday, rising to 1.4% per year against the 2.0% targeting by the Bank.

Gold Price Firm Amid 'Risk Off' Turmoil as China Targets Yuan, Crude Oil Falls on Iran News

January 18, 2016
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GOLD PRICES started the trading week edging above $1090 per ounce on Monday morning in London, while Asian stocks outside China slipped to their lowest level since 2011 and Brent crude fell to new 11-year lows beneath $28 a barrel as Iran prepared to export more oil following the end of Western sanctions over its nuclear program.
 
European equities traded higher, however, with Britain’s FTSE 100 up by 0.3% and Germany’s Dax gaining 0.6% from last week’s sharp losses.
 
China’s central bank took another step to fight downward pressure on its Yuan, announcing it is raising the reserve ratio for offshore banks offering clearing services for the currency.
 
China’s official GDP estimate for the last 3 months of 2015 is due out Tuesday.
 
“The way [these] steep equity price falls…is playing out is supporting gold and is more supportive of bullion than previous bouts of risk-off action,” wrote global bank and London bullion market-maker HSBC in a note on Friday. 
 
The gold price in US Dollars today extended its rise for 2016 so far to 2.8%. But profit-taking by investors – plus selling by mining producers – around $1,095 per ounce could keep a lid on further gains, said refining and finance group MKS’s Asian trading desk on Monday morning.
 
“With New York on holiday [Monday for Martin Luther King Day] we are unlikely to see the market move through this level.”
 
Silver prices also held firm on Monday, rising to $13.95 per ounce.
 
Platinum, in contrast, touched fresh 7-year lows at $817 per ounce, again widening its discount to the gold price to new all-time records.
 
Looking at the Comex derivatives market, latest positioning data from US regulator the CFTC, taken last Tuesday, show the ‘Managed Money’ category of traders turning bullish as a group overall on gold futures and options for the first time in 9 weeks.
 
Small speculators, in contrast, continued to hold more bearish than bullish bets as a group, extending the ‘Non-Reportable’ category’s net negative position to 20 of the last 26 weeks.
Comex gold futures and options, disaggregated data weekly since 2006
 
Brent oil meantime fell as low as $27.67 a barrel on Monday, its lowest since 2003, “due to the Western sanctions on Iran being lifted,” according to Singapore analyst Daniel Ang at Phillip Futures.
 
The decision to lift the financial and economic sanctions imposed in 2012 against Iran, formerly the Opec oil cartel’s second-biggest producer, came on Sunday after the international nuclear watchdog, the IAEA, said Iran had complied with a deal that should prevent its development of nuclear weapons. 
 
Around half a million barrels per day of extra crude oil could now reach world markets, according to analysts.

Gold Investment 'Disappoints, Unconvincing' as World Stockmarkets Slump 8 in First 10 Days of 2016

January 15, 2016
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GOLD INVESTMENT prices held a 1.3% rally from yesterday’s drop near 2016’s starting level in London on Friday, as crude oil sank to 11-year lows beneath $30 per barrel and world stock markets slumped again, led by China once more. 
 
Gold priced in Dollars cut the week’s investment loss to 1.8% at $1084 per ounce overnight as Shanghai’s main share index dropped 3.6% to hit 13-month lows after new data said China’s bank lending badly undershot forecasts for December.
 
Germany’s Dax then fell for the 8th of 10 sessions so far in 2016 – and New York equity futures pointed 1.8% lower on average – while US Treasury bonds rose yet again, pushing the yield on 10-year US government debt down to 2.04%.
 
The lowest level since October, before the US Fed finally raised its key overnight rate from 0% for the first time since 2009, that 10-year yield was below the annual average of the last 3 years.
 
“Analyst profit downgrades outnumbered upgrades by the most since 2009 last week,” says Bloomberg, citing monthly data from US banking giant Citigroup.
 
Gold, however, “is not yet seen as a potential solution” to investment woes, says one London bullion bank’s sales desk in a note, with “only patchy additions of real-money flow” from larger, long-term investment managers.
 
“Buyers of gold ETFs continue to pile in,” the note goes on, “but the price reaction remains muted as selling pressure from the mining industry is apparent” as producers look to ‘hedge’ by locking in current prices for future output.
 
“Playing gold volatilities is a safer bet.”
 
The giant SPDR Gold Trust (NYSEArca:GLD) – the world’s largest exchange-traded fund by value at its 2011 peak – has so far needed to add 11 tonnes to the bullion held to back its shares in issue in 2016, the strongest 2-week addition since October.
Chart of SPDR Gold Trust (NYSEArca:GLD) daily tonnes change, 2015-2016
 
Silver ETF investment through the iShares Silver Trust, in contrast (NYSEArca:SLV) has shrunk 0.5% by weight to a 6-week low of 9,840 tonnes, worth some $4.4 billion.
 
The gold investment GLD neared the start of New York trade today with a net asset value of some $22.7bn, down over 70% from its peak of 4.5 years ago.
 
Gold is “unconvincing,” says a note from strategist Tom Kendall at Chinese-owned ICBC Standard Bank, calling gold’s “failure to hold above $1100 earlier this week…disappointing in the context of the macro risk-off environment.
 
“Getting to the $1140-ish area by Chinese New Year (8 Feb)” – Kendall’s previous call – “has clearly become more of a challenge,” he goes on, with “physical markets best described as just ‘OK’…” as bullion sales by ICBC Standard Bank to Asian wholesalers rise but remain “a long way shy” of demand at this point in 2014 or 2015.

2016 Gold Price to Fall 14% Says 2015's Top Forecaster

January 14, 2016
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GOLD PRICES again fell below $1090 per ounce in London trade Thursday, heading for a 1.7% loss from last Friday’s 10-week closing high as European stock markets fell hard and crude oil whipped around $30 per barrel – its lowest price since April 2004.
 
2016 gold prices will average $970 per ounce, says Bernard Dahdah at French investment and bullion bank Natixis – winner of the 2015 gold forecast competition held by trade association the LBMA – ranging between $900 and $1300.
 
That would mark a 14% drop from last year’s average, and the fourth drop in a row since gold’s annual average peaked in 2012 at $1669 after 11 consecutive gains.
 
Dahdah forecast the 2015 gold price average down to the dollar at $1160.
 
Gold price, USD per ounce, annual average 1991-2015
 
“Gold could break as low as $950/oz,” says 2014 gold forecast winner Frederic Panizzutti at Swiss refining and finance group MKS, but “the ongoing geopolitical turmoil should provide a floor on the price of gold” with the 2016 price topping at $1210 and averaging $1120.
 
A series of murderous terrorist attacks in Jakarta, the capital of Indonesia — the world’s largest Muslim nation — saw Asian stock markets today lose 1.4% on the MSCI ex-Japan index, even as Shanghai rallied almost 2% from near 13-month lows following Wednesday’s 3% plunge in New York’s tech-heavy Nasdaq.
 
Yuan gold prices ended Thursday flat on solid trading at the Shanghai Gold Exchange, with Asian trade seeing “downward pressure from real money [investment accounts] and [mining] producer names,” according to one local wholesale dealer.
 
Shares in French auto-giant Renault then lost almost €6 billion ($6.5bn) as the stock sank 20% following news of police raids over emission-test cheating, apparently similar to the VW diesel scandal which has now halved the value of the world’s largest car marker since early summer 2015.
 
“It will be interesting to see if gold can manage to recover above $1100 after [commodity tracer-index] rebalancing-related selling abates later this week,” said Swiss bank UBS in a note Wednesday.
 
Meantime, “Short-term thinking appears to dominate for now [with] few [investment traders] willing to put on more strategic positions.”
 
“Rising interest rates imply a higher opportunity cost of holding gold,” says Natixis’ Dahdah in his new 2016 forecast.
 
“A strengthening Dollar and higher yields reduce the interest in gold. Furthermore, the stronger Dollar will continue to compete with gold as a safe haven.”
 
London market-maker and bullion bank Barclays meantime trimmed its 2016 average gold price forecast from the $1150 level first predicted 12 months ago to $1100 per ounce, saying that compared to base metals and other commodities it “expect[s] gold to find some support.”

Gold Bullion 'Hit by Rising Equities' & Commodity-Index Rebalancing as China's Trade Surplus Shrinks

January 13, 2016
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GOLD BULLION fell to 1-week lows in London on Wednesday, more than halving last week’s strong rise to trade below $1080 per ounce as Western stock markets rose – and commodity prices stabilized – following better than expected Chinese trade data.
 
With the Yuan falling hard towards half-decade lows against the Dollar on the FX market last month, China’s decline in imports slowed to 4% per year in CNY terms, while exports rose 2.3% annually.
 
That boosted the country’s trade surplus to the equivalent of $60.9 billion, the second-largest ever when measured in US Dollars after October last year.
 
For 2015 as a whole, however, China’s exports fell 7% in Yuan terms, the first drop since 2009, and shrank by almost one-eighth measured in Dollars.
 
Yuan gold prices today fell 1.3% on the Shanghai Gold Exchange, even as China’s domestic stock market dropped 2.2% in  late trade to fall below 3,000 on the SSE index for the first time since late-August – the end of last summer’s 45% crash.
 
That pulled the China gold premium above London quotes – a direct incentive for new Chinese imports – down to $1.90 per ounce by the close of trade, more than halving last week’s multi-month highs.
 
Crude oil meantime rallied gently from Tuesday’s 13-year lows below $30 per barrel.
 
Silver rose slightly from yesterday’s new 4-week lows, also steadying as gold bullion fell but trading 4.1% below last week’s peak to hold around $13.80 per ounce.
 
“Rebounding stock markets [have] re-exerted pressure on gold,” says one futures broker’s note.
 
Index rebalancing is also hurting gold, says Swiss investment and bullion bank UBS, pointing to the annual re-weighting of commodity-market tracker products, which this year will see “around 1.44 million ounces of gold and 15.84moz of silver…sold during [this week’s] rebalancing for both the Bloomberg Commodity Index and the S&P GSCI.”
 
That’s a “sizeable” sale of gold, UBS concludes, comparing this week’s 1.44moz of rebalancing to the average 2015 weekly change in speculative Comex positions of 1.98moz and the total November gold ETF outflow of 1.48moz.
 
On a technical analysis, meantime, “The yellow metal has retreated nearly $30 lower [since] touching the 100-[day moving average] on Friday last week,” notes the Asian trading desk of bullion refiners and financing group MKS.
 
First forecasting a rally above $1100 at the start of December, the technical team at French investment and bullion bank Societe Generale now say gold “has confirmed short-term formations [of a] double bottom [at $1045] and inverted H&S”, pointing to a near-term top of $1135 within the next 3 months.

Stocks Up, Gold Price Down as 'Safe Haven Rally' Fades, Double-Bottom Pivot Lost at $1088

January 12, 2016
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GOLD PRICES fell to 4-session lows lunchtime Tuesday in London, erasing two-fifths of last week’s 4.1% gain to trade at $1085 per ounce as China’s stockmarket held steady for only the fourth time so far this year, and European stock markets jumped over 2% for the day.
 
With US corporates set to begin their latest quarterly earnings reports, Wall Street equity futures pointed more than 1% higher before the open.
 
Crude oil fell to new 12-year lows, and the British Pound hit its lowest level against the Dollar since mid-2010 after weaker than expected UK manufacturing data.
 
That buoyed the gold price in Sterling above £753 per ounce, a 10-week high when first reached last Thursday.
 
“Platinum and palladium reverted to their pro-cyclical industrial roles [last week] while gold and silver both benefitted from safe haven buying,” says Jonathan Butler at Japanese conglomerate Mitsubishi.
 
But while the turmoil in world stock markets “was all for the good of gold,” Butler warns, “we would caution that safe haven rallies in bullion tend to be short loved – as [Monday]’s price action attests. 
 
“I am slightly disappointed that [gold] didn’t manage to close above $1100 again,” says David Govett at London brokers Marex Spectron today.
 
“Looking for dips lower to hold the 55-day [moving average]” of gold prices, Commerzbank’s technical analyst Karen Jones suggests in her weekly chart book that “the market is attempting to base from a longer term perspective” and setting an “upside target [of] $1131.”
 
“Our measured technical move on this formation is $1130,” agrees bullion bank Scotia Mocatta’s daily technical analysis, saying “We are bullish the metal while it closes above the Double Bottom pivot of $1088.”
 
“Sell everything except high quality bonds,” urges a note quoted by The Daily Telegraph from giant UK retail bank RBS’s chief credit analyst Andrew Roberts.
 
“China has set off a major correction and it is going to snowball. Equities and credit have become very dangerous, and we have hardly even begun to retrace the ‘Goldlocks love-in’ of the last two years.”
 
“[China’s] economy may not be the ultimate problem here,” says Reuters editor Eric Burroughes on his personal macro(il)logic blog.
 
“[Beijing’s] obviously bad decisions and ham-handed policy meddling are starting to threaten…the [Communist Party]’s ultimate success and claim to legitimacy…[which is] further economic growth and prosperity.”
 
Ahead of the Chinese Yuan falling to new 5-year lows this month as commodity-nation currencies led by the South African Rand and Mexican Peso hit record Dollar lows, global FX trading volumes fell in December by more than one-fifth from the same period in 2014, services provider CLS said overnight.
 
FX volumes hit a new all-time high as recently as September, CLS data showed earlier, reaching over $5 trillion per day.
 
“In a world of what could be perceived to be competitive currency valuations, you want to hold a store of [value],” says £9 billion UK investment manager Gareth Lewis at Tilney Bestinvest, commenting on his added allocation to gold.
 
Although “early” in 2015, and now wearing a small loss, “Gold was put in as a portfolio insurance policy against the fact the Dollar may unwind,” Lewis says.
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