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Saturday, July 30, 2011

gold price advanced $7.00 to $1,623 per ounce Friday morning after news that U.S. gross domestic product rose at a 1.3% annualized

The gold price advanced $7.00 to $1,623 per ounce Friday morning after news that U.S. gross domestic product rose at a 1.3% annualized pace in the second quarter – well below market expectations of 1.8%. The price of gold was also boosted by the fact that President Obama and House Republicans remain unable to forge an agreement to raise the debt ceiling. A waning economic recovery and ongoing worries over sovereign debt – in not only Europe, but now the United States – continue to support the gold price.

Worries over a slowdown in consumer spending over the balance of 2011 will not only keep the Federal Reserve on hold for the balance of the year, but also raises the possibility of a new round of quantitative easing. The prospect of additional asset purchases by the Fed will likely support gold prices.

With the U.S. debt ceiling debate continuing to dominate financial headlines, several strategists discussed the implications for the gold price in recent notes to clients. TD Securities’ Senior Commodity Strategist, David Bouckhout, noted that with no deal in sight, investors have flocked to the yellow metal. “The partisan politicking in the US Congress surrounding the debt ceiling and other key fiscal issues is unlikely to inspire investors to take risky bets at this point,” he asserted. “As such, gold is a solid bet given its safe-haven characteristics.”

In the event that a debt ceiling agreement is reached, Bouckhout predicted that the price of gold would fall materially. However, he did not believe the gold price decline would “precipitate a sharp and prolonged sell-off.”

“We suspect a debt ceiling agreement would push gold down some $30-60/oz,” Bouckhout continued, “but with underlying monetization, inflation, European debt and US dollar concerns still very much in play, we don’t expect gold to stay low for long.”

Another firm to reiterate its bullish stance on the price of gold was Dundee Securities, which raised its gold price forecasts over the next several years. The firm lifted its average gold price estimate in 2011 to $1,526 from $1,476, and in 2012 to $1,750 from $1,573 per ounce. Ron Stewart, Head of Research at Dundee, wrote in the firm’s report that “We remain confident in the price of gold as the likelihood of a weaker greenback or a lack of trust in paper currencies is expected to continue to generate sustained demand for bullion.”

Stewart went on to say that “We suspect an anemic U.S. economy (due to reduced government spending) could hurt many industries, resulting in the yellow metal, bullion-backed ETF’s, and the underlying equities to be seen as a logical destination for investors seeking shelter from the global economic storm.”

Friday, July 29, 2011

Enter gold as the ultimate surrogate currency

The gold price climbed $1.50 to $1,615 per ounce Friday morning, boosting by ongoing concerns that U.S. policy makers will be not reach an agreement to raise the debt ceiling by the fast-approaching August 2 deadline. The price of gold is hovering just under its all-time high of $1,626 per ounce. Despite a slightly stronger U.S. dollar this morning, precious metals held firm. Silver traded at $40.26 per ounce, unchanged versus its closing price yesterday.

The Beige Book’s cautious tone, coupled with the legitimate possibility of a U.S. default, helped the gold price tread water as investors liquidated other dollar-denominated commodities on Wednesday. Looking ahead, the economic backdrop for the gold price appears favorable, notwithstanding corrections due to broad-based market weakness. CIBC analyst Barry Cooper wrote in a note to clients that “the robust outlook for bullion remains intact as we continue to see debasing of currencies as the key contributor to gold’s rise.”

Cooper elaborated on his bullish gold price stance, noting that “We believe that for one of the first times in recent history, all three major currencies (U.S. dollar, euro, and yen) could be in jeopardy of depreciation but given that all are assessed against one another, the impact may be muted. Enter gold as the ultimate surrogate currency that is without debt encumbrances and we believe this is the reason to remain bullish on bullion.”

Wednesday, July 27, 2011

U.S. equity markets tumbled on Wednesday amid growing concerns over the debt ceiling, while gold held firm near its new record high

The broader U.S. equity markets tumbled on Wednesday amid growing concerns over the debt ceiling, while gold held firm near its new record high. The gold price spiked to anther all-time high, touching $1,626 per ounce Wednesday morning. The price of gold advanced following the news that durable goods orders unexpectedly fell 2.1% in June – versus expectations of a gain of 0.3%. Worries that a more severe drop in consumer spending is forthcoming weighed on stock and commodity markets. Crude oil fell 1.1% to $98.47 per barrel and copper sank 0.8% to $4.44 per pound. Silver followed the gold price higher, rising to $41.07 per ounce.

Dennis Gartman also provided commentary in support of the gold price in a recent edition of The Gartman Letter. “We have returned…modestly…to the long side of gold in non-US dollar terms…The major trends remain upward and we remain bullish of gold as we have been for months and years.”

It is worth noting that Gartman’s bullish gold price outlook came despite his prediction that the U.S. will raise the debt ceiling by August 2 and not default. The U.S. “has not defaulted in the past and it will not default next week. The US is not Argentina. The US is not Greece. The US in not Russia…all of whom have defaulted on sovereign debts in the past one hundred years…The US is and shall remain the world’s reserve currency.”

Likelihood of a third round of quantitative easing, QE3.

The gold price oscillated near the $1,612 per ounce level Tuesday while negotiations on Capitol Hill over the debt ceiling remain ongoing. The price of gold backed off its overnight high of $1,617 per ounce despite weakness in the U.S. dollar. The euro climbed to 1.45 against the greenback on fears that the U.S. currency will lose its AAA rating if a deal to raise the $14.3 trillion debt ceiling is not reached by the August 2 deadline.

UBS, in a note to clients, discussed the implications of the debt ceiling negotiations on the price of gold. “With little optimism on U.S. debt talks at the moment, the gold price acutely reflects investor nervousness that limited progress will be made before the Aug. 2 deadline,” the firm wrote. “This nervousness is in many ways justified as the threat of a U.S. ratings downgrade is very real.”

While Federal Reserve Chairman Ben Bernanke is likely a bit relieved to be out of the financial spotlight for a change this week due to the immediacy of the U.S. debt ceiling deadline, the impact of U.S. fiscal policies in the weeks ahead could very well increase the likelihood of a third round of quantitative easing, QE3.

Tuesday, July 26, 2011

Gold price touched a new record high overnight at $1,624 per ounce

The gold price touched a new record high overnight at $1,624 per ounce before backing off to trade at $1,617 Monday morning. Gold prices were boosted by the lack of agreement over the weekend to raise the $14.3 trillion debt ceiling and the negative implications for financial markets. The price of gold surged to fresh highs as concerns escalated that the Unites States could lose its AAA credit rating. The U.S. dollar declined modestly versus the euro and pound while commodities were mixed. Crude oil fell 0.7% to $99.30 per barrel. Silver was the best performing component of the 19 member Reuters/Jefferies CRB index, rising 2% to $40.87 per ounce early Monday.

House Republicans are unwilling to raise taxes as part of a deal, leaving President Obama in the difficult position of having to forge a deal unpopular among the great majority of his voting base. The possibility of a short-term deal that raises the debt ceiling in stages – a scenario the President repeatedly stated he did not want to do – appears to be back on the negotiating table. The gold price – as well as the broader stock and commodity markets – will likely be volatile this week as every piece of news related to the negotiations is parsed.

The quarrel between President Barack Obama and congressional Republicans over the debt ceiling should continue to drive markets. Movements in the gold price will continue to be driven off the debt ceiling discussions as well as and sovereign debt developments. A busy week of economic data in the U.S. could also impact the precious metals. On Tuesday, the Cash-Shiller report on home prices will be released, followed by reports on consumer confidence and new home sales. Wednesday brings a report on the durable goods and the Fed’s Beige Book.

Thursday’s schedule includes weekly jobless claims and pending home sales, and the week concludes on Friday with second quarter GDP, the Chicago Purchasing Managers’ Index, and University of Michigan Consumer Sentiment. If the upcoming reports reveal that the economy is continuing to sputter, the gold price is likely to remain a prime beneficiary. However, if the data exceeds economists’ expectations, the price of gold could face selling pressure.

Saturday, July 23, 2011

Forecasters Stay Bullish on Gold Into Next Year

The gold price bounced back above $1,600 on Friday, rallying $11.17 to$1,602.13 alongside the price of silver. While the price of gold advanced, gold’s sister precious metal climbed $0.52 to $39.85 per ounce, despite modest strength in the U.S. dollar. The euro currency fell 0.4% to 1.4371 this morning, following yesterday’s surge from 1.41 to 1.44 on the heels of the European summit on Greece.

Precious metals forecasters believe that gold will remain north of $1,500 for the balance of 2011, fueled by sovereign debt concerns in Europe and the weak economic recovery in the U.S.

According to the bi-annual Reuters poll of precious metals price forecasts, more than half of the 52 respondents expect the yellow metal to average above $1,500 this year. This is a significant change from the previous poll in January, when only 20% of respondents answered that way.

The poll returned a median forecast of $1,510 per ounce, up from $1,453 in January.

As for 2012, the median forecast was $1,575 per ounce, compared to $1,425 in the prior poll. As is clear from the data, not only do the respondents see gold remaining higher through year-end, but more importantly they no longer expect the yellow metal to decline next year.

Gold futures reached an all-time high record of $1,610.70 per ounce this past Tuesday.

Peter Buchanan, a Toronto-based commodities analyst at CIBC World Markets, commented that ”Even in the likely event Congress agrees to a debt ceiling rise, recent uncertainties are likely to reinforce central banks’ ongoing efforts to diversify from the dollar into gold and other assets.”

Friday, July 22, 2011

Gold Turn Lower on Debt Deal Reports

Gold futures turned lower Thursday afternoon following a report from the New York Times that U.S. President Barack Obama and congressional Republicans agreed in principle to a deal to raise the debt ceiling.

However, House Speaker John Boehner and White House press secretary Jay Carney each quickly denied the report.

In a Twitter message, Boehner called the report “false” and urged the Senate to approve the Republican “cut, cap and balance” bill, while Carney said the report was “incorrect” and that discussions remains “fluid.”

Gold initially fell to $1,590 on the report, climbed back to $1,595 following Boehner’s denial, but subsequently dropped to $1,588 per ounce.

Silver turned south alongside gold, falling $0.42, or 1.1%, to $39.14 per ounce.

The U.S. Dollar Index showed a muted reaction to the reports, remaining lower by 0.9% at 74.405.

U.S. equity markets extended their gains following the reports, as the Dow Jones Industrial Average (DJIA) advanced 158.14 points, or 1.3%, to 12,730.05.

Thursday, July 21, 2011

Gold is likely to reach $1,900 per ounce by October of this year

Gold is likely to reach $1,900 per ounce by October of this year, according to John Taylor, the founder, Chairman, and CEO of FX Concepts LLC.

Taylor, whose firm runs $8 billion, provided his latest outlook on the markets and economy in an interview with Bloomberg.

At tomorrow’s European summit on Greece, Taylor predicted that government officials “are going to kick the can further down the road,” rather than deal with the structural problems facing the euro zone.

As a result, Taylor predicted the start of another “risk rally” in financial markets, which may send the yellow metal to $1,900 per ounce by October.

However, following the rally, Taylor forecasted that the U.S. economy will enter a recession in 2012 that is more severe than that of 2008. “I’ll hang my hat on it,” he continued. ”It’s descending upon us already. Next year’s going to look worse.”

Once the recession hits, Taylor predicted the price of gold will tumble to $1,100 per ounce amid broad-based liquidation and strength in the U.S. dollar. As for the euro currency, he contended that a “conservative” estimate would place it at 1.15 against the dollar next year. Moreover, Taylor said that the euro has the potential to trade at parity against the U.S. dollar.

Wednesday, July 20, 2011

The gold price moved slightly lower

The gold price moved slightly lower Wednesday morning, sliding $16.14 to $1588.66 per ounce. Gold price have climbed for eleven consecutive days, the longest such streak in 31 years. Yesterday, the gold price surpassed $1,600 per ounce for the first time on its way to yet another series of new all-time highs. The price of gold reached an intra-day record high of $1,610 per ounce before settling near $1,605 per ounce. The SPDR Gold Trust (GLD), a proxy for the gold price and the world’s largest gold ETF, advanced $1.37, or 0.9%, to $156.57 per share.

While the gold price and gold equities advanced, the broader markets tumbled amid rising concerns over the European sovereign debt crisis and the looming U.S. debt ceiling deadline. The Dow Jones Industrial Average (DJIA) slid as much as 183.5 points, before paring its losses to close lower by 94.57 points, or 0.8%, at 12,385.16. The CBOE Volatility Index (VIX) spiked 7.3% to 20.95, as investor risk aversion moved higher.

European markets experienced widespread selling after a host of analysts expressed concerns over the lax assumptions made in the latest round of euro zone bank stress tests. J.P. Morgan wrote in a note to clients that “We remain worried about the secondary effect of the sovereign crisis into funding. Funding is the key concern, and without stress liquidity assumptions, the picture remains incomplete – especially in current market conditions.”

Michael Churchill, of Churchill Research, sounded even more cautious in his latest report. “This week’s plunge in Italian sovereign debt takes the European debt crisis to a whole new level,” he wrote. “It’s time to start thinking about apocalyptic scenarios. Live possibilities include Italian default, crack-up of the Eurozone, global recession, European hyperinflation” and/or a $3,000 gold price.”

“The one scenario that is increasingly unlikely is that everything just goes back to normal,” Churchill continued. “The debts are too large. The banks are too weak. The policies are too anti-growth.”

Tuesday, July 19, 2011

gold price broke out to a new all-time high above $1,600 per ounce

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.

Commenting on the breakout above $1,600 per ounce, TD’s Global Precious Metals team highlighted “the inflation adjusted all-time high in gold, going back to 1980 is $2,479.30 per ounce.” However, they did caution that “The yellow metal remains very well bid and it does feel like it’s on everyone’s radar at the moment – just have a look at the CFTC figures which show gold longs increasing by some 5 million ounces last week – the largest weekly increase since September 2009 and now within 4.4 million ounces of the record net long position.”

Saturday, July 16, 2011

Gold close this week at $1593.65 per ounce

The gold price moved slightly lower at beginning, sliding $3.10 to $1,584.25 per ounce Friday morning as profit taking weighed on the yellow metal but move up again to, Gold close this week at $1593.65 per ounce. The price of gold has gained 2.5% this week and 5.5% this month on the back of lingering sovereign debt issues and concerns U.S. policymakers will fail to reach an agreement to raise the $14.3 trillion debt limit.

Gold prices showed little reaction to the release of the Consumer Price Index (CPI) this morning. The June CPI fell 0.2% versus the previous month and rose 3.6% year over year. The figures were in-line with market expectations and failed to move either gold or the broader stock and commodity markets. S&P 500 stock futures gained 3.50 to 1310.20 while oil climbed $0.43 to $96.12 per barrel.

In Europe, although the sovereign debt crisis took a back seat to Bernanke over the prior two days, investors will be closely monitoring developments in Italy. The country’s lower house, Chamber of Deputies, will hold a confidence vote on a €40 billion ($56 billion) austerity package, following Thursday’s confidence vote approval by the Senate. Italy is hoping the austerity measures will help to alleviate concerns over the nation’s debt load, which is larger than the combined amount of Greece, Ireland, Portugal, and Spain.

Moving forward, UBS analyst Dominic Schnider wrote in a note to clients that “Sovereign debt problems in Europe and the U.S. and high inflation in emerging markets keep the structural outlook for gold bright. Gold is an outright buy from a diversification perspective. We target a move to USD 1,650/oz with price spikes above.”

Friday, July 15, 2011

Bernanke may not believe gold is money, many individuals and investors clearly disagree

The gold price rose toward $1,600 per ounce, rising as high as $1,594 late Thursday evening. The price of gold is on pace to rise for the ninth consecutive trading session on the back of a surge in investment demand for gold bullion, gold exchange-traded funds, and futures contracts tied to the gold price.

While Bernanke may not believe gold is money, many individuals and investors clearly disagree. With gold prices at new highs and on pace for their 11th consecutive annual advance, it is clear that the marketplace has sided with over 5,000 years of history that suggest gold is in fact money, rather than with a central banker who believes money can be created with a printing press.

In terms of the gold price outlook moving forward, TD Securities’ Andrew Spence wrote in a note to clients that “Gold reached a marginal new high this morning and the basic chart set up for the market looks quite constructive from a technical point of view…Trend momentum, as reflected by the DMI oscillator, suggests strongly bullish trend strength across a range of timeframes. That suggests an ongoing bias towards strength and that counter trend dips are likely to be relatively shallow and short-lived.” As a result, the firm predicted the gold price may “extend towards $1800 in the next 3-6 months.”

Thursday, July 14, 2011

Gold price breaking out to new all-time record highs

The gold price surged to a new all-time high Thursday morning, rising to $1,589 per ounce. The price of gold has risen 4.9% in July on the back of waning confidence in fiat currencies and renewed speculation that the Federal Reserve may consider a new round of quantitative easing. Silver, despite being well off its multi-decade high print of $49.79 posted earlier this year, has climbed 6.5% this month and is currently trading at $36.95 per ounce.

While the Fed continues to debate the prospects of QE3, the gold market appears to have already made up its mind. With the gold price breaking out to new all-time record highs, investors are betting that a third round of money printing is not too far away.

Across the Atlantic, while turmoil in Italy and Greece has supported the gold price in recent days, the baton was passed to Ireland on Tuesday. Moody’s cut Ireland’s credit rating from Baa3 to Ba1, placing it in junk territory. The ratings agency also placed its Irish rating on outlook negative, indicating an increased likelihood of a further downgrade.

In its report, Moody’s wrote that “The main driver of today’s downgrade is the growing likelihood that participation of existing investors may be required as a pre-condition for any future rounds of official financing, should Ireland be unable to borrow at sustainable rates in the capital markets after the end of the current EU/IMF support programme at year-end 2013.”

The Irish downgrade not only boosted the gold price, but helped pressure on the euro below 1.40 against the U.S. dollar. As a result, the euro-denominated price of gold reached a new all-time high for the second straight day, climbing to €1,122.03 per ounce.

Tuesday, July 12, 2011

Gold bullion as safe havens

Gold enjoyed a resurgence in safe-haven buying this morning, after extremely disappointing US non-farm payrolls numbers (which grew by a meagre 18k, falling far short of the market forecast for 105k). This has dented confidence in the US recovery and once again raised expectations for a third round of quantitative easing by the Fed. However, we do not expect QE3 as a base case. Our bullish view on gold is independent of further quantitative easing, and rather derives from our expectation of increased global liquidity stemming from growing government borrowing, especially in the developed world.

Equity markets across Asia and Europe were sharply lower Monday amid escalating concerns over the euro zone sovereign debt crisis. Herman Van Rompuy, European Council President, called an emergency meeting of top policymakers to discuss the debt crisis, in light of growing fears that Italy may be the next member of the PIIGS to need financial assistance.

U.S. equity markets were set to open considerably lower, with S&P 500 futures down 17.25 points at 1,324.50. Investors moved into the U.S. dollar and gold bullion as safe havens. Gold rallied $12.05 to $1,556.26 per ounce, while the euro currency tumbled 1.3% to 1.4028 against the dollar in morning trading.

Saturday, July 9, 2011

Gold spiked higher on the news that a mere 18,000 nonfarm payrolls were created last month

The gold price surged higher to $1,538 per ounce higher Friday morning after the release of June’s dismal jobs report. After trading lower earlier, the price of gold spiked higher on the news that a mere 18,000 nonfarm payrolls were created last month – versus expectations of 105,000. The unemployment rate ticked up to 9.2%, higher by 0.1% versus the previous month. Both gold and silver moved lower heading into the jobs data, then ramped as the news hit the tape.

The anticipated hike in the Eurozone benchmark rate gave the expected impetus to the euro, although this only occurred later in the day after the US markets opened. A probable reason for this was a focus on concerns over the region’s debt crisis, as Trichet dismissed the idea of a medium-term lending facility for Ireland. Despite the delayed reaction of the euro, Gold
responded almost immediately to the ECB announcement. All made good gains in the afternoon session, although gold appeared as somewhat of a laggard, hinting that investors are beginning to feel that gold is a bit overbought at these levels.

Friday, July 8, 2011

physical Gold selling is subdued with Indian demand still strong

As expected, the negative effect of yesterday’s announcement of a hike in Chinese interest rates proved to be short-lived. It was not long before the focus returned to concerns over the Eurozone debt crisis. Moody’s cut Portugal’s sovereign debt rating to below investment grade this week. In addition, the US debt-ceiling debate is also shaking the markets confidence.

President Obama is struggling to reach a compromise with Republicans who insist on spending cuts before they will agree to an increase in the US government’s borrowing limit. The risk-off sentiment maintained the upward momentum in overnight trade of gold and silver, after Asian markets initially opened as sellers. Despite the push in gold prices, physical Gold selling is subdued with Indian demand still strong. This leads us to believe that Indian buyers foresee further upside and are taking current prices in the fear that they might miss the dip. This, is coupled with risk aversion, is lending robust support gold.

The reaction of the euro to this afternoon’s ECB decision will be key to precious metal movements later today. The market largely anticipates a hike in rates which, given that this should support the euro, could benefit precious metals. This, coupled with a heightened aversion to risk, could spell further upside for gold and silver.

Gold support is at $1,514 and $1,500. Resistance is $1,539 and $1,549.

Thursday, July 7, 2011

gold price climbed $7.10 to $1,523

The gold price climbed $7.10 to $1,523 Wednesday after China raised interest rates for the third time this year. The price of gold fell as low as $1,510 per ounce before bouncing back above $1,520 after the People’s Bank of China announced that the one-year lending rate will rise to 6.56% from 6.31%, effective today.

While gold dipped $5.50 to $1,510.50 early Wednesday morning, the outlook for the Gold and companies that mine gold is improving according to a growing number of investment strategists and analysts.

In a research note published yesterday, CIBC World Markets’ technical team highlighted a number of reasons why the gold mining sector is currently attractive:

“June/July is historically a trough period for gold stocks (historically returning -1.5%), but this trough is usually followed by a nice rally in the later half of the summer months”

“80% of materials stocks are currently in a consolidation phase that has been ongoing since Nov/Dec of 2010 (long in the tooth….). What does this mean? It’s time to buy some gold stocks as we expect them to gradually move higher from here.”

“Some of the names that Sid noted are particularly oversold include ELD, SMF, AGI, and AEM. Eldorado is the name that exhibits the most oversold conditions and we recommend this name to be bought aggressively at these levels. The name also ranks very well from a fundamental standpoint, comes with a peer leading growth profile, and is Barry’s top pick (SO Rating, US$23 target)…Bottom line, buy gold.”

Wednesday, July 6, 2011

“Headline Risks” Emerge in Europe, China

Commenting on several “headline risks” emerging in recent days, J.P. Morgan’s Michael Jansen wrote the following in a note to clients this morning:

“There is a touch more headline risk about today. The first is that Fitch has been vocal in commenting that it would treat the planned French debt forgiveness/debt rollover plan as a technical default, a view which has similarly been embraced by S&P today. Moodys is the odd one out thus far as it relates to Greek debt defaults, but it has further soured the mood by releasing a report overnight saying that China’s local government debt may be RMB3.5 trillion larger than originally estimated.”

“This is a potential precursor to the agency downgrading the credit worthiness of Chinese banks and may add to unease in the investment community around the underlying robustness of the Chinese economy as Beijing seeks to evolve the growth model from one of investment/trade towards one of consumption. China bear.”

Despite the aforementioned headwinds, however, Jansen contended that “The expectation is that the debt ceiling debate in the US will deliver a compromise solution to avoid the US experiencing a technical default at a time that the European community is searching for an option that allows Greece to default on its debt without the ratings agencies declaring it as such (which would hinder the ECB’s ability to take Greek debt as collateral).”

“We hold the view that most of the event risk can be contained and that Greece will be allowed to roll-over its debt without a declared default,” he continued, “while the debt ceiling in the US will be extended allowing the machinery of government to operate.”

Tuesday, July 5, 2011

Gold open interest stood at 1,579 tonnes on COMEX

The decline in open interest appears to be gaining momentum, having shed 61.9 tonnes over the past week. As of last

  • Friday, gold open interest stood at 1,579 tonnes on COMEX, still well below last year’s average of 1,787 tonnes, and closing in on the 1,481.9 tonne low for the year. Accompanying the fall in open interest was a 1.0% w/w slide in prices.
  • Net speculative length fell sharply, at 142.2 tonnes lost over the week. The net speculative position for gold now stands at 625.5 tonnes — now well below last year’s average of 777.6 tonnes. This decrease was due to a drop of 145.4 tonnes in speculative longs, with a modest decrease of 3.2 tonnes in speculative shorts providing limited relief. Although the sharp fall in net speculative length underscores the susceptibility of gold to speculative sell-offs, we still feel that, from a fundamental perspective, there is potential for further upside over the medium term. We would, however, caution that over the short term, given that speculative short positions are currently at 123.1 tonnes, well above last year’s average (90.7 tonnes), sentiment is less supportive — which could see the gold market more volatile than usual.
  • Although ETF holdings of gold have come off, it was only modest, at only 0.3 tonnes lost. We therefore still believe that investor interest in gold has not completely evaporated.
  • Net speculative length as a percentage of open interest has dropped off sharply. Currently it stands at 27.6%, which is well below the 31% average seen during 2010. This indicates a market that is not at all overextended.

Saturday, July 2, 2011

Gold price sliding $11.50 to $1,488.50 per ounce

The gold price fell back under $1,500 per ounce Friday morning, sliding $11.50 to $1,488.50 per ounce. Precious metals and commodities were weaker across the board, led by a 2.1% drop in the silver price to $33.96 per ounce and a 0.9% fall in crude oil to $94.56 per barrel. While the gold price declined, the U.S. dollar traded flat versus the euro and most of its foreign counterparts.

Commenting on the implications for the gold price, Dan Smith, a metals analyst with Standard Chartered, wrote in a note to clients that although the Greek vote is not supportive of gold, other economic factors have helped keep the gold price north of $1,500 per ounce. “We see a lot of confusion about the Greek situation. The whole situation in Europe is distorted,” Smith stated. “There has been some safe-haven buying because of Greece and it’s coming out of the market now … But the long-term story is still bullish for gold. Investors are looking for protection against event risk.”

With real interest rates still negative across most of the globe, the fundamental macro-economic backdrop for the gold price remains supportive. The big question entering the second half of 2011 is whether gold mining stocks will be able to end their consistent underperformance of the gold price, a phenomenon that has driven many investors to shun the gold stocks in favor of the more direct leverage offered by exchange-traded funds.

Friday, July 1, 2011

Gold succumbed to some selling pressure from increased risk-taking

As largely anticipated, the Greece parliament has ratified the planned austerity measures. In the immediate aftermath of the vote,Gold succumbed to some selling pressure from increased risk-taking. However, with the opening of markets in the US, enthusiasm across the asset classes saw precious metals well bid. This enthusiasm for precious metals lost momentum in overnight Asian trade, as risk-on sentiment reduced the appeal of the traditional safe havens. As mentioned yesterday, we believe that upside for Gold, is still in the offing. With the distraction of the Greek vote out of the way now, the focus will now shift to today's PMI manufacturing data.

Our expectations regarding the PMI manufacturing data, specifically for China (which we have held since April), remain unchanged — given the strong seasonal patterns in PMI manufacturing data, combined with China’s monetary tightening, we would not be surprised to see, by the end of July, the PMI manufacturing reading indicating that Chinese manufacturing is contracting. As a result, we would look for the PMI data to confirm a decline today, followed by another decline next month.

Together with PMI data out of the US and Europe, which will most likely confirm the weakness of the global economy, this should reignite demand for the safety of Gold.

Gold support is at $1,501 and $1,494.

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