Gold Prices Slip, Moving Averages 'Key' on Technical Analysis as Lease Rates Go Below Zero

GOLD PRICES failed to hold a rally from 1-week lows in London on Thursday, dropping back towards what technical analysts called ‘support’ around key moving averages as Western stock markets erased earlier losses following yesterday’s sharp gains to multi-month highs.
Singapore surprised traders and analysts by easing its monetary policy, aiming for 0% appreciation of its currency against the US Dollar.
The Bank of England then surprised no-one by holding its UK lending rate at 0.5% for the 85th month running.
“With [Wednesday’s] down draft,” says a technical analysis from Canadian bank and bullion market maker Scotiabank, “gold formed an evening star pattern on the chart, which could point to some downside in the near-term…likely [to] test the $1231 support” – the 50-day moving average of gold prices.
Gold overnight touched $1228 per ounce in Asian trade, where contract prices in Shanghai – now due to launch a Chinese Yuan benchmark ‘gold fixing’ amongst 12 banks and 6 other participants on Tuesday next week – had earlier slipped 0.9% to a 1-week low on the strongest volume since last Thursday.
Gold then rose $10 per ounce over the 45 minutes following the Shanghai close, before dropping back $10 to $1235 in London ahead of the New York open.
Looking at gold’s exponential moving average – a measure of underlying trends which gives more weight to recent prices within the range – “Prices are hovering around the 200-EMA  line,” says a technical analysis from Dutch bank ING, noting how gold failed to rise above that line in mid-February, but “the downside reaction was very shallow.”
This marked “a totally different situation” from 2013 and 2014, when “prices sold off heavily after testing this moving average line,” says ING, concluding that gold’s “current consolidation around the EMA-200 line [is] a sign of strength…suggesting prices are building momentum.”
Fundamentally however, “The strong increase in gold prices [so far in 2016] has dented demand for the metal,” says a note from French investment and bullion bank Natixis, reporting an increase in the cost of lending gold (which carries storage and insurance costs) known as the forward rate.
This rising cost of lending gold – driven by lower demand to borrow metal – means that “for the first time since early 2013, gold lease rates have turned negative,” the bank goes on, highlighting how gold bullion borrowers can now earn a small return on the payment received from a gold lender versus the rate of interest they would otherwise have earned on cash deposits, albeit of just 0.02% per annum on 3-month deals.
Chart of 3-month gold lease rate from Natixis
“At the same time, silver lease rates have also dropped sharply,” says Natixis.
Silver prices today failed to follow gold lower, holding just 10 cents shy of yesterday’s new 6-month high of $16.30 per ounce.
On the supply side meantime, and after 2015 set the 7th consecutive record for global gold mining output, Polyus Gold – the largest gold miner in world No.3 producer nation Russia – said Thursday it grew first-quarter output by 9% from Q1 2015.
February’s gold output from world No.6 nation South Africa rose over 11% per year, reports the Reuters news-wire.


This publication is for education purposes only and should not be considered either general of personal advice. It does not consider any particular person’s investment objectives, financial situation or needs. Accordingly, no recommendation (expressed or implied) or other information contained in this report should be acted upon without the appropriateness of that information having regard to those factors. You should assess whether or not the information contained herein is appropriate to your individual financial circumstances and goals before making an investment decision, or seek the help the of a licensed financial adviser. Performance is historical, performance may vary, past performance is not necessarily indicative of future performance. This report was produced in conjunction with ABC Bullion NSW.

Contact Us

Adelaide Store

Mezzanine Level
20 King William Street
Adelaide SA 5000
08 8223 2444
9:30am to 4:00pm (Mon. - Fri.)

Brisbane Store

Level 2
17-19 Mt. Gravatt-Capalaba Road
Upper Mt. Gravatt QLD 4122
07 3349 7965
10:00am to 4:00pm (Mon. - Fri.)