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Thursday, June 30, 2011

Since gold’s decline towards $1,500 last week, physical demand has improved

Overnight volumes in Asia remained lacklustre, prompting only modest gains. This morning’s trade has seen Gold make some further gains, although the market remains tentative ahead of the Greek austerity vote. We don’t expect much price movement as the markets await the result of today’s vote. In general, Gold have experienced range-bound trading since late last week and it appears that much of the positioning has been completed in anticipation of Greece actually passing the austerity measures.

We believe the market is positioned for a positive outcome of the vote today. Our belief is informed by market price movement since Monday. The fact that since Monday
(1) European equities in general managed to rebound,
(2) measures such as the VIX managed to push lower
(3) the Euro strengthened and importantly
(4) many European bank equities pushed higher.

Should the measure be passed we could see safe-haven demand for precious metals slow down. However, we believe that this would be temporary. Later this week we expect PMI data (out of the US and Europe) to confirm the weakness of the global economy, which should reignite demand for the safety of precious metals.

Since gold’s decline towards $1,500 last week, physical demand has improved. The buying pattern remains consistent with what we have observed in the physical market for most of Q2:11. Any large price declines are seen as a good buying opportunity for gold, with demand being broad-based across Asia but still centred in India. We remain long gold.

Gold support is at $1,501 and $1,493. Resistance is $1,512 and $1,515.

Wednesday, June 29, 2011

De-risking and position reduction is affecting gold

J.P. Morgan analyst Michael Jansen addressed the recent gold price weakness in a note to clients, writing that “Why is gold weakening given events in Europe and building global inflationary pressures? Seasonally, gold tends to struggle late in Q2 and into early Q3. We think another reason is that general de-risking and position reduction is affecting gold, even if less so than the other precious and industrial metals.”

Jansen went on to say that “the USD is consolidating to a point that it may be encouraging profit taking on long gold positions…thirdly, the slower growth environment and move to inevitable fiscal consolidation has seen inflation expectations reduced even though actual inflation is worse than anticipated. Overall we remain bullish but look for more short term softness. Key support is $1465-$1475.”

As for the U.S. dollar, while it has rebounded in recent months, on Monday it retreated 0.3% against a basket of foreign currencies. The greenback’s slide coincided with worrisome results of a UBS survey of central bank reserve managers. Over half the 80 respondents – who manage over $8 trillion in assets – predicted that the dollar will be replaced as the world’s reserve currency by a portfolio of currencies within the next 25 years.

Tuesday, June 28, 2011

Stronger U.S. dollar has weighed on gold

The gold price traded lower Monday morning, falling $3.00 to $1,499 per ounce. The price of gold broke through a number of support levels last week as it plunged over $60. A stronger U.S. dollar has weighed on gold, silver, and the broader commodity complex in recent weeks. Sovereign debt worries, which have depressed risk appetites among investors, continue to dominate the headlines with key votes by the Greek and Italian parliament over austerity packages set to take place later this week.

The Global Precious Metals Team at TD Securities highlighted support levels for the gold price roughly 2.5% below current levels: “Short term support remains at $1,470 where gold has held a few times on recent sell-offs and we keep hearing rumors of central bank buyers below. We would look to buy gold at $1,470 should we see it and job the range up to $1,510.”

Saturday, June 25, 2011

Strength in the U.S. dollar helped pressure Gold

Gold, lower by $2.10 at $1,519.10, failed to bounce early Friday morning following yesterday’s steep $27.90 decline. Trading was relatively light following the heavy liquidation in COMEX gold futures that occurred yesterday as sell stop after sell stop was triggered. Gold’s sister precious metal, silver, sank $0.59 to $34.72 per ounce this morning. Strength in the U.S. dollar helped pressure Gold.

Despite yesterday’s violent sell-off, the ScotiaMocatta Precious Metals Research team remains bullish on gold. The firm highlighted $1,504 per ounce as a key level for the yellow metal, commenting in a noted to clients:

“Gold has taken a nasty turn lower today to current 1516. Yesterday’s high of 1558 appears to be a failure ahead of 1577 record high. The metal has broken a three month rising trend line support at 1526. Critical support is seen at June low 1511 and previous weekly low of 1504. We are bullish Gold while the metal holds above 1504, but see a break of 1500 yielding 1463.”

Friday, June 24, 2011

Gold price dove $26.30, or 1.7%, Thursday morning to $1,522.65 per ounce as the U.S. dollar spiked higher

The gold price dove $26.30, or 1.7%, Thursday morning to $1,522.65 per ounce as the U.S. dollar spiked higher. The price of gold faced heavy selling pressure, as did stock and commodity prices, after European Central Bank President Jean-Claude Trichet warned that the sovereign debt crisis poses a “serious threat” to the financial stability of the European Union. The euro fell sharply on the news and a wave of liquidation swept through global markets.

Crude oil, copper, and silver fell 4.4%, 1.7%, and 1.9%, respectively. Over longer period of time, gold acts in a counter-cyclical manner, however, the yellow metal has repeatedly shown that it is not immune to periods of rising risk aversion.

The gold price showed a muted reaction to the Fed announcement and Bernanke’s comments as the central bank largely met the market’s expectations. In its policy statement, the Federal Reserve wrote that the economic recovery is proceeding at a “moderate…though somewhat more slowly” than it had expected. It also noted that “recent labor market indicators have been weaker than expected.”

The Fed once again left in the “extended period” language with respect to keeping interest rates near zero, a decision that was unanimous. While the Fed acknowledged that economic growth is slowing, the policy statement did not offer any signals that the U.S. central bank is considering a third round of quantitative easing (QE3). With regard to inflation, the Fed noted that while it has “picked up in recent months…longer-term inflation expectations have remained stable.”

Thursday, June 23, 2011

Gold traded marginally lower at $1,545 per ounce ahead of the conclusion of the two-day Federal Open Market Committee meeting

Gold traded marginally lower at $1,545 per ounce ahead of the conclusion of the two-day Federal Open Market Committee meeting. At 2pm eastern time, the Fed will likely announce that it has kept the fed funds rate near zero. Investors will scrutinize the accompanying policy statement and Chairman Bernanke’s press conference for clues as to how likely an additional dose of monetary stimulus is after the recent slew of weaker than expected economic data.

The euro fell against the U.S. dollar despite Greek Prime Minister George Papandreou winning a confidence vote in Parliament. Concerns over the ability of Papandreou to secure parliamentary approval of budget cuts remain – necessary in order to secure the next round of funding from Europe’s supranational institutions.

Wednesday, June 22, 2011

The gold price advanced higher Tuesday morning

The gold price advanced higher Tuesday morning, climbing back near $1,550 per ounce. The price of gold traded as high as $1,545 per ounce, rising on the back of broad-based weakness in the U.S. dollar. The U.S. dollar traded lower against most of its trading partners, notably the euro. The euro climbed to 1.437 against the dollar early Tuesday.

Dollar weakness helped drive commodity prices higher across the board as oil and copper rose over 1% each to $94.51 per barrel and $4.14 per pound, respectively. Optimism that Europe’s core – Germany and France – would not turn their backs on Greece helped drive a gain in the euro and boosted equity prices overseas.

The gold price began the week on a quiet note, hovering near $1,540 per ounce for most of the day yesterday. Stability in the gold price came amid a quiet day in both precious metals and foreign exchange markets. Silver inched higher, by $0.11 to $35.99 per ounce, while the euro currency rose 0.2% to 1.4299 against the U.S. dollar.

The gold price has held firm as uncertainty has risen over a potential fresh bailout for Greece after European finance ministers chose to delay their decision on providing the debt-plagued nation with another €12 billion ($17 billion) in financial aid funds. In an official statement, the euro zone policymakers stated that they expect the payment – which is part of a €110 billion bailout package from the European Union (EU) and International Monetary Fund (IMF) – to be made to Greece by the middle of next month.

Tuesday, June 21, 2011

Gold price dipped Monday morning, trading lower by $3.50 at $1,536 per ounce

The gold price dipped Monday morning, trading lower by $3.50 at $1,536 per ounce. The price of gold held steady despite sharply lower prices for cyclically-sensitive commodities such as oil and copper.

Investment demand for gold has been one of the driving factors behind the yellow metal’s rally in recent years. Since early May, however, it has declined amid heightened uncertainty surrounding the European sovereign debt crisis and the likelihood that the Fed will not launch QE3 in the near future.

Despite the fact that it has remained “stagnant” of late, investment demand for gold may be due for a rebound in the weeks ahead, according to MF Global.

In a note to clients, Tom Pawlicki – precious metals & energy analyst at MF Global – wrote that “Uncertainty in Europe will still dominate, in both the prospect for an ECB rate hike and the Greek bailout. It appears that both could be settled by early-July, which may end up being positive for the euro. Gold could then benefit from either resulting dollar weakness if the issues are resolved or from safe-haven if they’re not. This may cause investment demand to return this month after ETF holdings, open interest, and COT data have been stagnant since hedge funds exited in early-May.”

Pawlicki went on to say that “We don’t see too much weakness in store for gold, however, as support will be offered by the possibility that economic weakness remains simply a ‘sub-par recovery,’ including a lack of progress on the US debt ceiling negotiations, any safe-haven demand stemming from Greece, as well as potentially higher Chinese commodity demand.

Saturday, June 18, 2011

Gold prices have traded in a tight $20 range all week

GOLD PRICE NEWS – The gold price, close this week at $1,539 per ounce. Gold prices have traded in a tight $20 range all week while volatility in global financial markets has risen. Since touching its record high of $1,577 per ounce in early May, the price of gold has been consolidating above $1,500 as investors weigh the short-term impact of the escalating sovereign debt crisis on the yellow metal.

Holly Hendershot, on the Global Precious Metals team at TD Securities, noted, “The precious metals markets seem a little confused with what a potential Greek default might mean for them – contagion fears and risk aversion may well drive investors back to the USD, though safe haven status should surely attract the gold bugs. It seems owning Gold against EUR/AUD/CAD might be the better play here.”

The euro, after sinking all week on fears of a Greek default, moved higher this morning after German Chancellor Angela Merkel assured markets that Germany was committed to European integration and to the euro. The U.S. Dollar index (DXY) fell 0.28 to 75.15 as the euro rose to 1.428 against the greenback.

Friday, June 17, 2011

The gold price changed hands at $1,529 per ounce

The gold price changed hands at $1,529 per ounce Thursday morning, trading near unchanged as global financial markets quieted down after a tumultuous week. The price of gold held firm after the release of initial jobless claims showed 414,000 Americans filed for unemployment benefits. Renewed weakness in the labor market has helped fuel concerns that the recovery in the U.S. is in jeopardy.

Strength in the gold price coincided with a rally in the U.S. dollar, particularly against the euro. The euro/dollar currency cross posted its worst day since March 2009, as it plummeted over 300 basis points, or 2.0%, to 1.4121. By climbing alongside the U.S. dollar, the gold price once again illustrated its role as the world’s “de-facto reserve currency,” in the words of hedge fund magnate Eric Sprott.

The euro’s weakness followed a disappointing end to the latest meeting of euro zone officials, whose failure to reach a consensus on the terms of a new bailout package for Greece has kept the euro zone in flux. The situation deteriorated further in Athens on Wednesday, as a general strike engulfed the nation and police used tear gas on rioters in Syntagma Square. Greek Prime Minister George Papandreou later stated in a televised address that he will form a new government on Thursday. Papandreou is also expected to seek a vote of confidence from the Greek parliament, according to multiple media outlets.

Thursday, June 16, 2011

Gold price continues to be supported by the ongoing sovereign debt crisis in Europe

Despite this morning’s weakness, the gold price continues to be supported by the ongoing sovereign debt crisis in Europe. The latest drama in the Greek tragedy occurred late Tuesday afternoon, when Luxembourg Finance Minister Luc Frieden announced that an agreement on a second bailout for Greece may be delayed until July. Frieden told reporters that policymakers need to ensure there is no “contagion effect” from a bailout and that private sector involvement – i.e. a debt restructuring – is “likely.”

Legendary investor George Soros weighed in on the Greek crisis at an economic conference on Tuesday, where he criticized euro zone officials for “not providing a solution but basically buying time.” Soros noted that policymakers “have always done that…that is the normal thing for authorities to do. In this case, I’m afraid they’re making a mistake.”

Another critic of the policy response in Europe has been Dennis Gartman, long-time commodities investor and author of The Gartman Letter. In a recent interview with Hard Assets Investor, Gartman laid put his bearish case for the euro currency and his bullish stance on the price of gold.

Wednesday, June 15, 2011

Gold price has also been negatively impacted by the likely absence of QE3

Over the past month, financial markets have come under heavy selling pressure as investors remain skeptical that the Federal Reserve will launch a third round of quantitative easing (QE3) in the near future. While equities and cyclical commodities have bared the brunt of the selling, the gold price has also been negatively impacted by the likely absence of QE3.

Along with the lack of additional money printing by the Fed, economic data in the U.S. has noticeably deteriorated in recent weeks. This trend was most evident in the May non-farm payrolls report, which came in far below expectations.

Gold support is at $1,509 and $1,499. Resistance is at $1,531 and $1,543.

Tuesday, June 14, 2011

ETF holdings of gold saw an increase of 10.7 tonnes over the week ended 10 June

After a strong increase the previous week, open interest has declined modestly, by 2.7 tonnes over the past week. As of last Friday, gold open interest stood at 1,532 tonnes on COMEX, well below last year’s average of 1,787 tonnes. Accompanying the fall in open interest was a 0.7% w/w fall in prices. Nevertheless, net speculative length is still making steady gains, albeit at a slowing pace. Last week saw 26.7 tonnes added to net speculative length, after the previous two weeks had 59.6 tonnes and 30.4 tonnes added respectively. The net speculative position for gold now stands at 716.9 tonnes — closer to last year’s average of 777.6 tonnes. The increase
in net speculative length was equally due to an increase of 13.6 tonnes in speculative longs, and a 13.1 tonnedecline in speculative shorts.

This is an encouraging sign of growing investor confidence. ETF holdings of gold saw an increase of 10.7 tonnes over the week ended 10 June. Once again, investor interest in gold is growing, which, together with physical demand from Asia, should keep gold well supported. As a percentage of open interest, net speculative length has remained steady at 31.7% (up only marginally from 31.15% in the previous week). This is largely in line with the two-year average of 33%, and continues to indicate a market that is not particularly overextended.

Saturday, June 11, 2011

Gold price tumbled $15.32 to $1,528.81 Friday morning

The gold price tumbled $15.32 to $1,528.81 Friday morning amid weakness in commodities and strength in the U.S. dollar. Silver fell alongside the gold price, by $0.66, or 1.8%, to $36.91 per ounce, while oil sunk 1.1% to $100.79 per barrel. The euro slid 0.3% to 1.4465 against the dollar as ongoing concerns over the Greek sovereign debt crisis weighed on the European currency. In Asia and Europe, equity markets were weighed down by a report on China’s trade surplus, which came in below expectations.

On Thursday the gold price stretched its streak of consecutive closes between $1,535 and $1,545 per ounce to ten. The advance in the price of gold came amid broad-based gains for commodities and equities, following six straight down days for the broader markets. The price of gold climbed to as high as $1,550.80 in morning trading, but pared its gains as the day progressed. The SPDR Gold Trust (GLD), a proxy for the gold price and the world’s largest gold ETF, added $0.75, or 0.5%, at $150.56 per share.

Friday, June 10, 2011

The gold price stabilized near $1,538 per ounce

The gold price stabilized near $1,538 per ounce Thursday morning after the European Central Bank (ECB) left its benchmark interest rate unchanged at 1.25%. While the gold price held firm, the euro slid 0.7% to 1.4485 against the U.S. dollar despite the fact that ECB President Jean-Claude Trichet signaled that an interest rate hike at the ECB’s July meeting is likely.

Yesterday saw the gold price fall $8.46, or 0.6%, to $1,536.31 per ounce after Fed Chairman Bernanke made no mention of a third round of quantitative easing in his discussion on the U.S. economic outlook. Despite the gold price sell-off, the yellow metal held within the $1,535 – $1,545 range it has now occupied for nine consecutive trading sessions.

Thursday, June 9, 2011

Oil rallied over $4 per barrel on Wednesday after OPEC unexpectedly decided to leave production levels unchanged

The price of oil rallied over $4 per barrel on Wednesday after OPEC unexpectedly decided to leave production levels unchanged following a meeting that ended in “disarray,” according to the Associated Press.

Oil climbed from near $98 to as high as $101.89 per barrel follow OPEC’s meeting in Vienna, Austria. The price of oil pared its gains in afternoon trading, but remained considerably higher, by 1.7% at $100.78 per barrel.

OPEC officials announced that because of a policy deadlock, the group will maintain present output ceilings, but keep open the option of another meeting within the next three months to consider a production increase.

Wednesday, June 8, 2011

Gold futures held steady near $1,545, while the broader U.S. equity markets relinquished their gains as Fed Chairman Ben Bernanke began his speech

Gold futures held steady near $1,545, while the broader U.S. equity markets relinquished their gains as Fed Chairman Ben Bernanke began his speech on the outlook for the U.S. economy.

The most important aspect of Bernanke’s speech is the final paragraph on monetary policy, in which the Fed Chairman makes no mention of QE3, but does reiterate the need for accommodative policies:

Although it is moving in the right direction, the economy is still producing at levels well below its potential; consequently, accommodative monetary policies are still needed. Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established. At the same time, the longer-run health of the economy requires that the Federal Reserve be vigilant in preserving its hard-won credibility for maintaining price stability. As I have explained, most FOMC participants currently see the recent increase in inflation as transitory and expect inflation to remain subdued in the medium term. Should that forecast prove wrong, however, and particularly if signs were to emerge that inflation was becoming more broadly based or that longer-term inflation expectations were becoming less well anchored, the Committee would respond as necessary. Under all circumstances, our policy actions will be guided by the objectives of supporting the recovery in output and employment while helping ensure that inflation, over time, is at levels consistent with the Federal Reserve’s mandate.”

The full text of Bernanke’s speech is available here:

Tuesday, June 7, 2011

The gold price, at $1,542.50 per ounce

The gold price, at $1,542.50 per ounce, traded near unchanged Monday morning despite modest strength in the U.S. dollar. Global equity prices have been under pressure over the past month with the S&P 500 falling for five consecutive weeks. Weak data points in housing, manufacturing, and labor have all combined to heighten worries over the prospect of a double-dip recession. Precious metals, notably gold, have benefited from their safe haven qualities as investors seek to lower their risk profiles.

The strong performance of the gold price in recent years has led to a growing collection of calls for the United States to return to a gold standard. Steve Forbes, the billionaire CEO of Forbes Inc., wrote a piece in Forbes Magazine urging candidates for the 2012 U.S. presidential election to consider returning to some form of gold standard to support the value of the U.S. dollar.

Saturday, June 4, 2011

The unemployment rate climbed to 9.1% - Gold Price Spikes Higher

The gold price rallied Friday morning on news that the U.S. labor market continues to show very little signs of improvement. The price of gold spiked $15.00 off its morning lows, trading as high as $1,540 per ounce before settling back near $1,535 after the U.S. Labor Department announced that 54,000 non-farm payrolls were created in May. The unemployment rate climbed to 9.1%, Gold price spikes higher!

Gold prices were one of the only asset classes outside of U.S. government bonds to move higher on the news. S&P 500 stock futures sank 16.10 to 1296.30 and cyclical commodities such as oil and copper faced heavy selling as well. Oil futures slipped 1.6% to $98.81 per barrel while copper fell 0.5% to $4.06 per pound. Gold’s sister precious metal silver was notably weak, falling 2.7% to $35.22 per ounce.

Friday, June 3, 2011

QE3 “Very Unlikely,” Says by PIMCO’s El-Erian

Mohamed El-Erian, CEO and co-CIO of PIMCO, said that is “very unlikely” the Federal Reserve and Chairman Ben Bernanke will launch a third round of quantitative easing, i.e. QE3.

El-Erian argued this week that if QE3 were to be implemented, the balance of costs and benefits has shifted against the Fed, by “lowering the potential gains and increasing the probability of collateral damage and adverse unintended consequences. ”

The PIMCO CEO went on to say that as the Fed's balance sheet has “already ballooned, there is growing unease in Washington about an unelected group of officials being so able to implement de facto fiscal measures with few checks and balances. I suspect that Fed officials realize this, and will likely resist further steps that would significantly erode their operational autonomy.”

Lastly, El-Erian pointed to “surges in capital flows to other countries.” Along with “weakening the dollar, such surges complicate economic management in the rest of the world. They fuel inflation and credit bubbles, and force countries to counter with monetary policy tightening.”

El-Erian’s comments stand in stark contrast to many other well-respected investors, including Eric Sprott and Marc Faber, who believe Bernanke and the Fed will launch many more rounds of QE because of the remaining significant threat of deflation.

Thursday, June 2, 2011

Gold price rebounded to $1,538 after a disappointing employment report from ADP Employer Services

After falling as low as $1,529 per ounce Wednesday morning, the gold price rebounded to $1,538 after a disappointing employment report from ADP Employer Services. According to ADP, 38,000 jobs were created in May – the smallest increase in eight months. Gold price have been supported by the weak labor market, which continues to provide fuel for Chairman Bernanke and his dovish majority on the Federal Reserve to maintain the central bank’s zero interest rate policy. Silver, despite trading off 0.6% this morning, bounced alongside the price of gold to $38.10 per ounce on the back of the soft jobs report.

The gold price dipped $3.07 to $1,535.60 yesterday amid speculation that European governments will pledge additional financial aid to Greece. In contrast to the gold price, silver advanced $0.39, or 1.0%, to $38.51 per ounce, fueled by a broad-based rally in cyclical commodities. Optimism surrounding the Greek bailout package boosted risk appetites and helped send the euro higher by 0.7% to 1.4388 against the U.S. dollar.

Wednesday, June 1, 2011

Mark Mobius - Another financial crisis around the corner

A new financial crisis is looming for the global economy, according to Mark Mobius, who oversees more than $50 billion as executive chairman of Templeton Asset Management’s emerging markets group.

“There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis,” Mobius stated on Tuesday in Tokyo at the Foreign Correspondents’ Club of Japan.

Mobius pointed to the fact that derivatives are still not regulated, and their growth has risen substantially in recent years. Furthermore, policymakers have not properly addressed the “too big to fail” problem regarding the size of financial institutions.

In 2006, Mobius was named one of the “Top 100 Most Powerful and Influential People,” by Asiamoney, which stated that he “boasts one of the highest profiles of any investor in the region and is regarded by many in the financial industry as one of the most successful emerging markets investors over the last 20 years.”

When asked how individuals should protect themselves from the risks of another financial crisis, Mr. Mobius urged investors to remain heavily diversified. As for signs of impending doom, Mobius told investors to keep a close eye on the fixed income markets, particularly long bonds and credit spreads.

He also identified gold as one of the potential safe haven areas.

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