Gold staged an abrupt move down early this morning

After tracking sideways for the greater part of Asian trading hours, gold staged an abrupt move down early this morning. Dollar strength was the primary catalyst as sentiment turned against the Eurozone in the wake of election uncertainty in France and ECB President Draghi at the weekend’s G20 finance ministers summit resisted pressure from the IMF to do more to stem the debt crisis in the region.

However, stops were triggered around the $1,638 mark, sending the price even lower. It appears as if
the market has now stabilised around the $1,632, level with good support coming from Asian buyers.
The Shanghai Gold Exchange announced an increase in margin requirements and trading bands for its gold and silver contracts.

The margin for gold contracts will be raised to 13% from 12%, while the trading band is increased to 10% from 9% as of 26 April settlement. For silver, the margin becomes 16% (from 15%), and trading limits are 13% (from 12%). This has not had much effect on markets because the move was largely anticipated in advance as of the end of April/early May holidays in China.

Spanish bond auction

After a dramatic sell-off in gold yesterday, the gold price recovered rather quickly and settled in a fairly tight $1,645 to $1,655 range for most of the overnight session. Overnight, activity in the complex was largely confined to the white metals, as buying interest was perked up by the more genial sentiment.

This morning, we’ve seen the whole complex succumb to waning investor enthusiasm, most likely due to Eurozone uncertainty sparked by the approach of tomorrow’s Spanish bond auction. A strengthening dollar is adding to the downward bias of price of gold.

Gold support is at $1,635 and $1,623. Resistance is $1,658 and $1,670.

Worse-than-expected Chinese GDP numbers are weighing on sentiment

Gold was buoyed by the perceived dovish talk from Fed and ECM members yesterday, pushing beyond the $1,670 level. The rest of the complex, in particular silver, was taken along for the ride. Improved sentiment (especially concerning Europe) and a weakening dollar also helped broaden the appeal of precious metals. However, the initial rally soon ran out of steam, with gold remaining in the $1,670-$1,680 range overnight.

This morning, the worse-than-expected Chinese GDP numbers are weighing on sentiment, although the effect on gold and silver has been rather muted. This lack of direction is understandable, since a weaker Chinese economy could see jewellery demand fall, but it may also prompt a greater monetary policy response from the PBoC which would be to the benefit of precious metals. We feel the latter outcome is not likely (although easing will continue at a moderate pace), and even if the PBoC were to step up monetary accommodation, it would take 12-18 months before the effect would be felt in the economy.

Gold managed to rally yesterday as sentiment continued to sour

Shrugging off the downward momentum from a stronger dollar, gold managed to rally yesterday as sentiment continued to sour, prompting some safe-haven associated buying. With equity markets coming under pressure, even in the US—Alcoa’s better-than-expected results only came in after the closing bell—it was apparent that risk aversion was definitely back. The other precious metals, especially PGM, didn’t seem to benefit as much—no doubt still weighed down by the disappointing Chinese trade data, which signalled continued lacklustre global industrial demand.

However, we would also caution against being overly optimistic on gold as the rally could have been overdone, given that it occurred amid weak volumes and thin liquidity. During Asian market hours, profit taking was evident as gold came under selling pressure from the start. Heavy liquidations were also evident in platinum. Physical demand for gold has suffered after yesterday’s rally as participants appear to be waiting
for a sharper move lower before entering the market.

The dollar is tracking sideways this morning, which is keeping gold largely range-bound. European equity markets appear to be staging a timid recovery. Should this upward momentum hold and be extended into the US markets (as equity futures currently indicate could happen), we could see gold lose some support. The Fed’s Beige Book is being released later today, which could spark some price activity in precious metals as the market tries to glean from it the possibility of further quantitative easing.
Gold support is at $1,636 and $1,618. Resistance is $1,669 and $1,682.

Physical demand for gold, which has been relatively good

Gold price received a shot in the arm late last week from a disappointing US non-farm payroll number, as market participants continued to react to changing expectations of further quantitative easing. Of course, a weaker US economy raises the possibility that the Fed will need to act. The upward momentum stalled over the weekend, although, with some decent interest from the Far East, precious metals remained relatively steady yesterday.

Disappointing Chinese trade data sparked some interest in the complex earlier this morning, as poor imports numbers signalled perhaps a deeper slowing down of the Chinese economy than originally anticipated. This saw some safe-haven buying emerge in Asia, and no doubt also propped up expectations that this could see the PBoC increase the pace of monetary easing. However, with European markets back today, it is once again the euro/dollar that is largely dictating movements in Gold price—with a strengthening dollar weighing on prices and reversing the early morning gains.

Concerns over the Eurozone sovereign debt crisis are back, with Spain the current focus. To this end, we could see some euro/dollar reaction (and consequently, a reaction from precious metals) from tomorrow morning’s Spanish industrial production figures. Physical demand for gold, which has been relatively good despite the protest action in India is likely to pick up, after it was announced that Indian jewellery stores would be reopening ahead of the Akshaytritya Festival which begins 24 April.

Gold support is at $1,635 and $1,629. Resistance is $1,649 and $1,656.

In Asian markets, interest in gold price remained severely lacking

The downward pressure on gold price continued into the early part of the New York trading session, with already negative sentiment (especially regarding the prospects of central bank easing) compounded by ECB President Draghi’s remarks after the bank’s interest rate announcement. The emphasis he placed on inflation concerns is most likely what has spooked the markets as it reduces the possibility that the central bank will engage in any further monetary easing. However, he did attempt to balance these remarks by saying that he did not think that he was being overly hawkish and that “any talk of exit strategy is premature”.

In Asian markets, interest in gold price remained severely lacking, with the lower price levels even failing to attract significant physical buying. Nevertheless, there was enough interest again (as there was the previous day) to keep prices relatively stable. This morning, we’ve seen cautious buying give the complex a moderate lift.

Gold support is at $1,607 and $1,591. Resistance is $1,644 and $1,664.

We still favour gold and see $1,630 and $1,600 as good levels to establish a long position for a move higher

Along with most other markets, gold and silver, came under heavy selling pressure yesterday after the FOMC minutes appeared less dovish than market participants had hoped for. It was largely the non-committal mentioning of further quantitative easing rather than a clear signal that there would be no further stimulus that markets have focused on. Once gain, the Fed mentioned that “if the economy lost momentum or if inflation seemed likely to remain below its mandate consistent rate” then it would engage in further monetary accommodation.

As outlined in our Quarterly Preview (released yesterday) our view on gold remains unchanged. We still favour gold and see $1,630 and $1,600 as good levels to establish a long position for a move higher. We forecast an average gold price of $1,790 for 2012. This bullish view has always been independent of whether or not a third round of Fed quantitative easing would occur.

We feel the global reserve accumulation will continue to grow (spearheaded by emerging markets and particularly China) and consequently provide the main impetus for gold-friendly growth in global liquidity during 2012. Overnight, the rout was arrested somewhat by decent physical buying, especially from South East Asia. However, this only served to keep prices steady, with the downward trend resuming in this morning’s trade. Should the euro/dollar manage to remain steady, we don’t foresee another leg down today.

Gold Price Tumble, Fed Minutes Signal Lower Odds of QE3

A recap of the most recent Federal Open Market Committee (FOMC) meeting, the Fed minutes indicated that the odds of a third round of quantitative easing (QE3) in the near future have been meaningfully reduced. MarketWatch.com posted the following summary the minutes:

There was less interest in another round of asset purchases, commonly known as quantitative easing at the Federal Reserve’s policy meeting in March, according to the minutes released on Tuesday. At the meeting, only a couple of members suggested that more easing could become necessary if the economy lost momentum. At the previous policy meeting in January, a “few” Fed members thought the central bank could start adding more long-term securities before long and “a number of participants” indicated they were open to the idea if the economic outlook deteriorated. The Fed officials thought that the economy was a “bit stronger” but had not changed the outlook in a material way. While recent job numbers has been encouraging, a number of Fed officials said there was a risk that improvements could diminish as the year progressed, as happened in the last two years. The minutes reveal that the Fed discussed more ways to communicate their views to markets but made no decisions.

Gold price to be largely dictated by euro/dollar movements today

Once again, a weaker euro (and the consequent dollar strength) served as a downward impetus for gold price markets yesterday. Slowly, market participants are returning their attention to the Eurozone and the possibility of further fiscal problems in the region and, for now, the focus is on Spain. Also, comments from S&P overnight once again brought Greece’s rating into question, highlighting the high risks and inflexibility of the current plan.

We expect movements in gold price to be largely dictated by euro/dollar movements today. Consequently, we could see gold price react to the plethora of US data out today (GDP, jobless claims and Kansas City Fed manufacturing activity). For the most part, this reaction will hinge on what market participants think the data flow means for the possibility of further quantitative easing. Therefore, a disappointing set of numbers could be the most positive outcome for gold price.

Keeping with the quantitative easing theme, there are several Fed members scheduled to speak today, including Fed Chairman Bernanke. No doubt, the market will be all ears to try and determine from their respective remarks whether or not the Fed is planning another round of quantitative easing. After Bernanke’s most recent dovish comments, expectations of increased monetary accommodation have been heightened. Therefore, should any of today’s commentators be perceived as being too hawkish, we could see a marked knee-jerk reaction to the downside from gold price.

Physical demand is improving below $1,650 with buying in Asia (ex-India) strong on approach of $1,630

Gold is finding resistance on approach of $1,670. In fact, resistance between $1,670 and $1,687 (the 200d MA) is great. For gold to move higher, this range has to be broken first – something we do not expect in the next few days. We believe that rallies towards $1,670 will be sold into. We continue to believe that the metal provides value between $1,630 and $1,600.

Physical demand is improving below $1,650 with buying in Asia (ex-India) strong on approach of $1,630. We have seen a marginal pick-up in the SGE gold premium too ($7.5/oz this morning from around $6/oz at the start of last week) – another indication that dips in gold are being bought into. Although Indian demand remains low, we do expect demand to pick up in April as the Akshaytritya festival in late April is fast approaching. This is the second-biggest gold festival in India.

The rally in the US 10-year government bond yield moved rapidly higher early last week on the back of higher growth expectations. The yield moved from 2% to 2.4% in a few days but has since retreated to 2.25% again. Silver is finding strong resistance on any rally. We believe that it will continue for a few more months. We still think rallies above $35/oz are likely to fade. However, we also believe that when the silver market conditions improve, the price could move sustainably above $35/oz again. Gold support is at $1,652 and $1,630. Resistance is $1,660 and $1,644.

Gold,continued to languish yesterday afternoon as disappointing Eurozone figures

Gold, and the rest of the complex, continued to languish yesterday afternoon as disappointing Eurozone figures kept the euro on the back foot and investor enthusiasm remained lacklustre. Better-than-expected US data flow (jobless claims and the leading indicator) also contributed to reduced interest as a further dent to quantitative easing expectations.

Overnight though, Asian buying interest was forthcoming at the start of the trading day. This kept prices relatively stable for most of the trading session until some liquidation in gold brought prices down. This morning, gold has been tracking euro/ dollar movements with some euro weakness adding support. Indian buying in the physical market has also resurfaced providing an extra level of support.

Once again, we have some scheduled comments from Fed members, but these are unlikely to spark any marked reaction as it is improbable that these platforms will be used to bring up anything new on the Fed intended operations. In addition, market participants should be getting used to the idea that further quantitative easing appears extremely unlikely at his stage. To this end, if we see disappointing new home sales numbers we could see these quantitative easing hopes re-emerge. Continued housing market distress might see the Fed buy mortgage-backed securities, although it should be kept in mind that these would most likely be sterilised.

Gold support is at $1,633 and $1,616. Resistance is $1,663 and $1,675.

Financial problems of Europe will be revisited sooner rather than later

The gold price held firm near $1,655 per ounce on Wednesday as the yellow metal continued to consolidate in morning trading.  The price of gold, as well as the U.S. Dollar Index, oscillated between gains and losses in overnight trading.  Silver moved modestly higher, by 0.3% to $32.30 per ounce.

In the latest edition of his Gold Monitor, Murenbeeld wrote that “The case for some gold bearishness is fairly compelling at the moment.  Europe is in recession and with the prospect of no further LTRO, fiscal retrenchment and deflationary domestic pressures are front and center…China is slowing, and while no one can know exactly how rapidly, there is growing speculation that the slowdown is turning into a ‘harder’ landing than government officials have suggested… The US dollar is well bid, not least because there is renewed optimism over the US economy.”

However, despite the near-term bearish factors, Murenbeeld contended that the longer-term outlook for the price of gold remains quite favorable.  “Our principle argument for QE3 actually rests with the likelihood of a financial/banking disaster in Europe (which for the moment has been postponed because of LTRO1 and 2),” he wrote, “and the Fed will then wish to insulate the US financial sector from the contagion.”

“With respect to Europe, it is highly doubtful monetary reflation is finished,” the Dundee economist added.  “Where, for example, will the €500 billion for the ESM come from, or the billions remaining to be doled out under the EFSF in the likely event this program continues through 2013?…this money doesn’t grow on trees; it will have to be borrowed by some government and/or it will have to be printed by some central bank. In our view the financial problems of Europe will be revisited sooner rather than later.”

Support in the physical market below $1,640 but this is not strong enough

Gold remains within its $1,640 to $1,660 trading range of the past few days. There is good buying support in the physical market below $1,640 but this is not strong enough, or buyers are not keen enough to chase the metal higher. Indian demand remains lacklustre with the local market still digesting how best to cope with the hike in taxes. However, indications are that the Indian market is likely to look for opportunities on dips lower in the gold price in anticipation of festival demand in late April.

Gold support is at $1,644 and $1,640. Resistance is $1,662 and $1,674.

US economy remains fragile and that this is why the Fed is holding out on its decision regarding further quantitative easing

Once again, precious metals received a shot in the arm from a weaker dollar yesterday afternoon. The weakness was mainly as result of the better-than-expected current account figures and comments from New York Fed President Dudley that the US economy remains fragile and that this is why the Fed is holding out on its decision regarding further quantitative easing. Of course Dudley’s comments have also buoyed the complex from a liquidity perspective, especially since recently the news has not been too positive on that front.

However, this support proved transitory as the lack of physical buying has weighed on gold, which is taking the rest of the complex down with it. Physical buying out of Asia has evaporated as India’s bullion markets remain closed in protest to last week’s announcement of an increase in import duties on gold. Indian buyers are expected to return tomorrow.

This morning, precious metals are struggling to shake off the overnight downward momentum, with a slightly stronger dollar adding to negativity. Concerns over a stronger US economy and a slump in India’s gold demand (after the import duties are raised) are keeping the precious metals on the back foot. Not much to look forward to today in terms of data flow, although US housing numbers and scheduled Fed speakers could prompt some reaction.

Gold support is at $1,644 and $1,640. Resistance is $1,662 and $1,674.

Gold managed to claw back some its losses yesterday

After suffering the previous few days, gold managed to claw back some its losses yesterday. This was despite the more optimistic outlook for the US economy portrayed in the release of manufacturing (Empire Manufacturing and Philadelphia Fed) and jobless claims numbers. The dollar eased off as sentiment turned mildly risk on, which also reduced downward pressure on gold.

During Asian market trading hours, the upward momentum stalled as interest in gold was not forthcoming. Activity remained relative subdued throughout the session which kept prices on an even keel. This morning however gold has run into some headwinds, taking the rest of the complex lower as well, as India’s Finance Minster announced an upward revision of the customs duty on gold imports. The duty on gold bars and coins will be doubled (to 4%), and the excise duty on refined gold will become 3%. While the initial announcement has raised concerns over a drop in demand for gold, we would await the release of the final details before drawing any overly bearish conclusions.

US inflation excluding food and energy has surprised on the downside, rising 0.1% m/m in February (against expectations of 0.2% m/m). We do believe the market will read this as a positive for precious metals keeping hopes alive of any further easing of US monetary policy. Gold support is at $1,638 and $1,621. Resistance is $1,670 and $1,684.

Gold Physical Flow Index is showing considerable buying

Gold came under continued pressure yesterday, as investors continued to liquidate positions in light of lowered expectations of liquidity growth. Currently, gold is trading at around our target of $1,650, which we feel represents good value, based on our analysis of futures market positioning and the Fed’s current monetary policy stance. We also mentioned yesterday that we could see a fall to $1,630, although it appears as if physical market activity for now is providing support at sub-$1,650 levels, keeping prices off this low mark. Not surprisingly, our Standard Bank Gold Physical Flow Index is showing considerable buying, as participants are tempted by the recent fall in prices.

Gold support is at $1,628 and $1,607. Resistance is $1,677 and $1,704.

Gold and silver continued to be weighed down by the disappointing Chinese trade number

Gold and silver continued to be weighed down by the disappointing Chinese trade numbers for most of yesterday—as we mentioned this does not bode well for reserve accumulation and consequently, global liquidity. Overnight trade was relatively lacklustre, with Asian participants showing little interest in the complex, although there was a spike in volumes just ahead of the Bank of Japan (BoJ) announcement. All in all, the BoJ made no significant changes to monetary policy, so markets were again left disappointed in terms of expectations of further easing. The announcement also gave the dollar some upward momentum,
which continues to weigh on precious metals this morning.

Caution appears to be the order of the day, as markets look to this afternoon’s FOMC announcement. The consensus view is that the Fed will leave policy unchanged—we concur. The reaction from precious metals will largely be dictated by the extent to which participants still harbour expectation for further monetary policy accommodation. As we pointed out yesterday, a lot of speculative length was removed from the precious metals futures markets after Fed Chairman Bernanke, in his address to US lawmakers two weeks ago, failed to mention the prospect of further quantitative easing. Silver and palladium now appear less vulnerable as net speculative length is currently more in line with historical norms. However, the futures market still appears
cautious on gold, as are we. Gold support is at $1,686 and $1,677. Resistance is $1,711 and $1,726.

Net speculative length for COMEX gold was dealt a severe blow, falling 159.2 tonnes

Again on Friday precious metals (in particular gold and silver) showed their vulnerability to market expectations of liquidity growth, or rather, lack thereof. After better-than-expected US non-farm payroll numbers, the complex fell dramatically and suddenly.

This initial reaction to a stronger reading on the US economy was most likely prompted by diminishing prospects of further quantitative easing by the Fed. Despite a persistently stronger dollar, the complex soon rebounded after talk of US military action in Iran and Syria sent investors into the relative safety of precious metals. This morning, we saw the weaker Chinese trade data weigh on all commodities. Global trade imbalances and the attendant reserve accumulation, in our view are a pillar of global liquidity. Consequently, a deepening Chinese trade deficit would be negative for precious metals, especially gold. We do expect a turnaround in the trade balance during March, but feel that the situation should be monitored.

Net speculative length for COMEX gold was dealt a severe blow, falling 159.2 tonnes — a 12-month record. This was mostly the liquidations that resulted from the market’s reaction to Bernanke’s address on 29 February. The change in the net position was the result of speculative longs being unwound (168.7 tonnes). There was also a mild decrease in short positioning (9.5 tonnes). The decline in net speculative length is not surprising, given the overly enthusiastic stance of the futures market during the previous weeks. It remains to be seen if the market is now on a more stable footing or if some excess remains. Although ETFs continued to buy gold, enthusiasm is fading. ETFs ended the week with a meagre 3.3 tonne gain to their gold holdings (compared to 8.5 tonnes in the previous week). Perhaps some bargain-buying, after the previous week’s fall, persists.

However, it appears as though ETFs remain wary of gold. Gold support is at $1,683 and $1,661. Resistance is $1,721 and $1,737. Silver support is at $33.23 and $32.57, resistance is at $34.48 and $35.05.

Gold continued their recovery yesterday

Gold continued their recovery yesterday, with momentum building towards the latter half of the trading day. A Wall Street Journal article suggesting that the Fed might be contemplating alternative forms of easing (other than conventional quantitative easing) helped give precious metals, gold and silver in particular, some added lift. It is reported that the central bank is considering sterilised bond purchases and/or requirements placed on sellers of any bonds to Fed as to how the funds can be used. We don’t anticipate that the Fed will announce any change to policy at next week’s FOMC meeting. Nevertheless, as we move closer to the meeting, volatility in gold and silver prices is anticipated.

Underscoring the vulnerability of precious metals to expectations of monetary policy, we saw some speculative buying in Asian trading emerge on a rumour that China was going to cut the reserve requirement ratio. These rumours soon subsided, and along with them the support they had provided for gold prices.
The main focus today will be the deadline for the private sector involvement agreement (20:00 GMT). Expectations are that the take-up will be sufficient to allow the debt swap to proceed without any activation of the collective action clauses (we hold this same view). These expectations have kept the euro buoyant so far today, and as a consequence have helped gold extend the upward momentum of yesterday.

However, we must highlight the vulnerability of these gains to any speculation or rumour as the deadline approaches. Gold support is at $1,686 and $1,670. Resistance is $1,703 and $1,704.

Gold physical market, activity is brisk

After consolidating during the New York trading session, Gold traded mostly sideways in Asian markets overnight. For the most part, trading in Asian markets remained relatively light, with investor enthusiasm for gold still suffering the effects of reduced expectations of liquidity growth.

However, in the gold physical market, activity is brisk. Strong buying is providing support at the $1,695 level. Our Standard Bank Gold Physical Flow Index has pushed considerably higher this week so far (to levels last seen at the beginning of February), indicating that as a whole, physical market participants are net buyers and increasingly so. We must highlight though that February to June is typically a period where physical demand is weak (relative to the rest of the year). As a result, we believe that waning physical demand over the medium term could translate into a support level closer to $1,650.

This morning, a surge in the dollar (especially in relation to the euro) has added to the downward momentum of the complex. Eurozone debt crisis concerns are once again weighing on investors minds as we approach the Thursday deadline for the private sector involvement agreement. The Greek Finance Minister has rattled markets by taking a hardline and saying that the existing offer is the only offer that the government will consider, and that he stands ready to trigger the collective action clause which would force all bondholders to accept the deal.

Gold support is at $1,681 and $1,676. Resistance is $1,705 and $1,723.

Correction is expected to be temporary as several macroeconomic drivers of higher gold prices reassert themselves

The gold price tumbled $36.45, or 2.1%, to $1,669.21 per ounce Tuesday morning as ongoing sovereign debt concerns in Greece led to U.S. dollar strength and widespread liquidation on Wall Street.  With its decline, the price of gold fell to its lowest level since January 24 and cut its year-to-date gain to 6.7%.  Silver retreated alongside the gold price, by $1.34, or 3.9%, to $32.70 per ounce.

Commenting on the outlook for gold, analysts at Commerzbank wrote in a note to clients that “There is additional scope for (a) correction” in the price of gold and silver.  The firm based its cautious short-term stance on the view that many fund managers who accumulated positions earlier this year may continue exit the trade.  However, Commerzbank later contended that any further correction is expected to be temporary as several macroeconomic drivers of higher gold prices reassert themselves.

Richard Davis, a fund manager at Blackrock – the world’s largest asset management company – recently discussed the economic factors likely to push gold prices upward in the months ahead.  “What is more important with regards to gold is real interest rates are negative and this is the key issue that we have to look at,” he stated in remarks to Reuters.  “(A switch in) this factor will probably signal the end of the bull market in gold and our view is that we are still some way from this point because inflation is a problem and interest rates are very low.”

As for specific gold price targets, Davis noted that “There is quite a distinct possibility that we will see highs above $1,900.”  Although he did not identify a time period for his prediction, Davis added that “It won’t take it a lot to get back to those levels and I certainly wouldn’t be surprised to see gold going to a new high and going to $2,000.”

Investors more confident in silver than gold

Net speculative length for COMEX gold continued to climb over the past week. The change in the net position was once again the result of speculative longs added, while another mild increase in short positioning (2.6 tonnes) detracted somewhat from the overall improvement. The increase in net speculative length is not surprising, as futures market participants had positioned ahead of the ECB’s second LTRO on 29 February (the latest data covers the week ended 28 February, and therefore does not include the market’s reaction to Bernanke’s address).

However, this enthusiasm soon faded, as we saw last week Wednesday, which should be evident in this Friday’s release of CFTC numbers. ETFs ended the week with another gain of 8.5 tonnes to their gold holdings this past week. Perhaps some bargain-buying after Wednesday’s drop, lifted holdings. However, the increase is nothing remarkable, indicating that ETFs remain wary of gold. Given that we see fair value for gold at $1,640, we would look to establish tactical longs between $1,590 and $1,640. Longer term, we maintain that gold will reach new highs in 2012, probably towards Q3.

Turning to silver, net speculative length (COMEX) continued to improve, marking an eighth week of steady gains, with a dramatic 934.1 tonne increase. The improvement was the result of a remarkable rise in long positions — the largest gain since August 2011. Before last week Wednesday, futures market positioning
was the strongest it has been since the dramatic fall during late September of last year. This might explain why silver was not hit as hard as gold. Investors seem to have greater confidence in the possibility of further upside for silver.

Underscoring this confidence is the strong increase in silver ETF holdings. This past week, 144.0 tonnes were added. It appears that ETFs felt that, after Wednesday’s fall, it was the right level at which to get into silver.
Net speculative length as a percentage of open interest continues to climb and, at 21.6.1%, is well above the 2011 average of 15.7%. This is a clear indication of a market that is becoming overstretched and consequently vulnerable to correction. Despite the apparent investor enthusiasm, we believe that silver’s downside remains exposed (mainly due to Chinese inventories), to below $33/oz. We don’t believe that ral-

Gold - At these price levels we’ve seen an interest in the physical market pick up

After an early morning recovery from the previous day’s rout, gold struggled to hold onto upward momentum yesterday, trading for the most part in the $1,710 to $1,725 region (a notable exception was the New York open which saw prices plummet to $1,705). The tentative investment demand is in contrast to the physical buying we’ve seen. At these price levels we’ve seen an interest in the physical market pick up, particularly from Asian buyers.

Friday morning we’ve seen continued dollar strength, with the rate against the euro slipping below the 100 day moving average. This is weighing on the precious metals complex. With not much in terms of data flow today, we maintain a bias towards downside, as the dollar strengthens and markets continue to reposition after revising their expectations for liquidity growth downwards, i.e. the assumption that there will be no QE3 from the Fed and no further ECB LTRO’s. While we concur with this view, we remain bullish on gold over the long term — we maintain gold will reach new highs in 2012, probably towards Q3. Our view on gold has never relied on further extensions to central bank quantitative easing programs.

Gold support is at $1,698 and $1,680. Resistance is $1,730 and $1,744.

Eurozone money markets which poses a considerable risk to all commodities, including gold

The pullback in Gold price we’ve been anticipating this week came earlier then we had expected. New York trading saw prices plummet, with Fed Chairman Bernanke’s address to Washington lawmakers the apparent catalyst. Investor reaction was largely due to Bernanke not making mention of any further quantitative easing and even highlighting that unemployment was improving more rapidly than expected. Consequently, markets expectations of liquidity growth (a major support for precious metals, and gold in particular) were dealt a severe blow, adding to the apparent finality of the ECB’s liquidity-enhancing measures (i.e. there was not hint at future LTROs).

It is interesting to note that the fall in gold price has also been accompanied by a turnaround in the Euribor/OIS spread, a measure of Eurozone money market liquidity. Ever since the first LTRO announcement in early December, this measure has been trending lower (an indication of easing conditions). Today the measure pushed higher. We will keep a close eye on this spread—if it should continue on an upward trajectory this could herald a freezing up of Eurozone money markets which poses a considerable risk to all commodities, including gold.

Implats issued a statement yesterday announcing an agreement with the union to end the four-week long work stoppage. The company plans to start phasing in production from next week Monday. However, it could take some time before production is at full capacity (which as pointed out yesterday could be below pre-work stoppage levels) as safety checks and medical screenings have to be conducted before operations can begin. Transport links to the mine were obstructed overnight, although this has not disturbed operations or the re-hiring process.

COMEX gold futures - fell to as low as $1,688.40 in electronic trading

Gold prices plunged Wednesday amid U.S. dollar strength and widespread liquidation in precious metals.  The primary catalyst for the sell-off was Ben Bernanke’s semi-annual testimony to Congress, in which the Fed Chairman indicated that the central bank was not prepared to launch a third round of quantitative easing (QE3) in the near future.

COMEX gold futures, per the April contract, settled lower by $77.10, or 4.3%, at $1,711.30 per ounce but later fell to as low as $1,688.40 in electronic trading.  The loss marked gold’s worst single-day decline since late September 2011, over five months ago.  Furthermore, the yellow metal relinquished its entire gain for the month of February and cut its year-to-date return to 7.8%.

A pullback in gold and silver seems due

As we move closer to the ECB’s second LTRO (long-term repo operation) on 29 February, the latest CFTC data shows increased investor interest in gold and silver. This is unsurprising, given the promise of increased liquidity and a potentially weaker dollar which accompanies this measure. However, we would caution against markets becoming overly enthusiastic, and would not be surprised to see a pullback towards the end of this
week or early next week.

After the previous week’s interruption, net speculative length for COMEX gold resumed its climb, with 57.3 tonnes added this past week. The change in the net position was the result of speculative longs added (60.7 tonnes). The mild increase in short positioning (3.3 tonnes) detracted somewhat from the overall improvement. As already mentioned, the increase in net speculative length is not surprising, as futures market participants position ahead of the ECB’s second LTRO. ETFs appear to be of a similar mind to futures market participants, with 8.5 tonnes added to their gold holdings this past week. However, the increase is certainly nothing remarkable, so perhaps they share our scepticism that the rally will be sustained.

We maintain that gold will reach new highs in 2012, probably towards Q3. However, we’re still avoiding an overweight position in gold. Looking at COMEX silver, net speculative length continued to improve, marking an eighth week of steady gains, with a 236.5 tonne increase. This brings the total net speculative length added this year to 3,009.7 tonnes. Unlike in the previous week, this time the improvement was largely as a result of remarkable rise in long positions — of 345.0 tonnes. However, short positions were added for the first time in six weeks (108.5 tonnes).

Futures market positioning remains the strongest it has been since the dramatic fall during late September of
last year. However, the 108.5 tonne turnaround in short positioning makes us wary. ETFs also do not appear too confident in silver’s prospects, with only 28.4 tonnes added to their holdings this past week (after 106.2 tonnes were shed in the previous week). It is worth noting that net speculative length for silver as a percentage of open interest, at 19.1%, is well above the 2011 average of 15.7%. This is a clear indication of a market
that is becoming overstretched and consequently vulnerable to correction. We believe that silver’s downside
remains exposed, possibly towards $29/oz.

Gold was pushed higher during New York trading hours

Gold was pushed higher during New York trading hours yesterday, reaching a 3-month high on electronic trading momentum. The move higher was accompanied by light physical selling, which was extended by participants in Asia (both China and TOCOM). This, together with some profit taking (augmented by a stronger yen), put some downward pressure on the metal overnight.

This morning, we initially saw an extension of the overnight weakness. However, a spike of dollar weakness saw gold push upwards to the $1,780 mark, before subsiding back to the around $1,775. Silver reacted more markedly to this morning’s dollar weakness, and has managed to hold onto most of these gains. However, this point of support (i.e. dollar weakness) is not expected to hold, as the market digests the EU’s interim economic forecasts. The report warns that the Eurozone will most likely enter a “mild recession”, which could put a dampener on sentiment, only recently (and perhaps prematurely), buoyed by the approval of Greece’s bailout.

Once gain the effect of this afternoon’s US data flow, the dollar will most likely dictate price movements in Gold. Today, we have jobless claims, house price and Kansas City Fed manufacturing activity data. An improvement in the manufacturing is expected, while jobless claims are expected to rise and house price growth is expected to ease.

Gold support is at $1,757 and $1,737. Resistance is $1,791 and $1,803.

Greece to receive the required €130bn in bailout loans

With the US on holiday and the rest of the market holding its breath ahead of the much-anticipated meeting of Eurozone finance ministers last night, yesterday saw gold price trade largely sideways. However, after the conclusion of the meeting, at which agreement was reached for Greece to receive the required €130bn in bailout loans, markets immediately reacted positively. Most of the pick-up in gold price was owed to a weaker dollar.

However, enthusiasm has faded this morning, as the euro loses ground. Most gold price are trading at the levels before the conclusion of last night’s meeting. Perhaps confidence has been dented by a leaked confidential report, currently doing the rounds, that warns that Greece could require even more debt relief. In addition, uncertainty over the public backlash and the upcoming Greek elections (in April) has also perhaps dampened confidence in the deal.

For the rest of today, we might see some support for prices as the US plays catch up to the overnight Eurozone news. However, should the current questioning of the situation in Greece gain traction (which Eurozone equities, currently in the red, seem to indicate) we could see precious metals remain on the backfoot due to the stronger dollar.

Gold support is at $1,730 and $1,723. Resistance is $1,742 and $1,745.

Gold and silver could see a near-term pullback

Ending five weeks of increases, net speculative length for COMEX gold fell 38.2 tonnes this past week. The change in the net position was largely the result of speculative longs being unwound. The increase in short positioning continued for a second week. The decline in net speculative length affirms our suspicion that the aggressive moves at the end of January were largely as a result of overexcitement after the Fed’s dovish announcement.

Consequently, we remain cautious of gold’s near-term prospects, and would not be surprised to see further weakness emerge this week. ETF buying also continues to decelerate. A meagre 0.8 tonnes were added to gold holdings. We maintain that gold will reach new highs in 2012, probably towards Q3. However, we’re still avoiding an overweight position in gold. Given that we see fair value for gold at $1,640, we would look to establish tactical longs between $1,590 and $1,620.

COMEX silver net speculative length continued to improve, marking a seventh week of successive gains, with a 262.0 tonne increase. This brings the total net speculative length added this year to 2,773.3 tonnes. Unlike in the previous week, this time the improvement was largely as a result of a marked decline in short positions — 206.2 tonnes. A healthy 55.8 tonnes were added to longs. Futures market positioning remains the strongest it has been since the dramatic fall during late September last year (and at 4,546.0 tonnes, net
speculative length is largely in line with last year’s average). If we see a continued strengthening of investment demand, this could help prices shrug off some of the negativity of a weak outlook for industrial demand.
After a stellar two weeks of buying, ETFs turned net sellers, with 106.2 tonnes shed from holdings this past week. Perhaps investors remain uncertain about silver’s prospects.

Gold Support Getting Less

Yesterday, Gold joined most other asset markets on a roller coaster ride as the morning’s pessimism gave way to excitement over the US economy and perceived progress in solving the Greek situation. US jobless claims numbers eased off, with initial and continuing claims falling to 348k and 3,426k respectively (from 361k and 3,526k respectively). The initial claims number was the lowest since 2008. In addition, housing starts also grew expectedly (1.5% m/m, consensus was for a 3.4% m/m decline) and the Philadelphia Fed Index showed strengthening industrial activity in the region, adding to optimism that the US economy was gaining traction.

Eurozone officials yesterday expressed their optimism that finance ministers would give approval to Greece’s second bailout package at this Monday’s meeting. There was also news from Athens, with officials there also optimistic that the government was close to achieving the additional €325m in spending cuts. Reports that the European governments might reduce interest rates on Greece’s bailout loans also bolstered market confidence. Lastly, the ECB has pledged further involvement in the debt restructuring programme.
The above contributed to a weaker dollar, which along with a healthy dose of short-covering and bargain hunting gave gold prices a shot in the arm yesterday afternoon. However, the upward momentum faded in overnight trading with the complex trading mostly sideways.

We expect this trend to continue into the weekend, as participants remain wary of taking on new positions ahead of Monday’s Eurozone meeting. Perhaps, given yesterday's reaction to positive US data flow, we could see some price action after this afternoon’s leading indicator numbers—though this would depend on the dollar’s reaction.

Gold support is at $1,714 and $1,697. Resistance is $1,739 and $1,747.

Gold came under selling pressure as fears of a possible Greek exit from the European Monetary Union

After enjoying some upside in the early morning, Gold (along with most other markets) came under selling pressure as fears of a possible Greek default and/or exit from the European Monetary Union were reinforced by the cancelling of yesterday evening’s Eurozone leader meeting. It was hoped that yesterday’s meeting would see the Eurozone leaders approve Greece’s proposed austerity budget plans and pave the way for that country to receive the required bailout funds.

For Gold price, as well as commodities in general, if a default and/or withdrawal should occur, there are several important considerations. First, a drop-off in the euro/dollar — a sudden drop to $1.20 appears likely — would of course be negative for commodity prices. Second, financial contagion which could prompt a drying up of money market liquidity, not only in Europe but across the globe. This, in our view would lead to a dramatic fall in commodities (although perhaps not as dramatic as the response to the 2008 credit crunch), even for those traditional safe-havens such as gold. Lastly, the real economic impact on Europe, and via its trade linkages around the globe, would also be felt in the demand for those metals with industrial applications.

Overnight, during Asian trading hours there was some bargain buying of gold and silver on dips below $1,722 and $33.32 respectively. However, the dour mood has continued this morning, with precious metals continuing to lose ground, weighed down by an ever strengthening dollar. Again, as in Asia, we are seeing some bargain hunting, although this time across the complex, which might place a floor on further downside.

Gold support is at $1,713 and $1,706. Resistance is $1,733 and $1,745.

Gold and silver managed to push ahead

Gold and silver managed to push ahead yesterday afternoon, despite renewed dollar strength. Overnight and this morning, increased optimism over the Eurozone extended the upward move for gold and silver, with PGM also enjoying the benefits of a weaker dollar. Most of this optimism was inspired by the commitment from Chinese authorities to help resolve the region’s debt crisis. Strong physical buying (our Standard Bank Gold Physical Flow Index continues to rise), particularly out of India, has also helped push gold higher.

However, the buoyant mood has since soured as investors grow increasingly concerned over a possible Greek default and/or exit from the European Monetary Union. The catalyst for these concerns has been the cancelling of today’s Eurozone leader meeting, at which it was hoped that Greece would finally gain approval to secure the required bailout package. In light of these renewed concerns, the dollar is strengthening which is placing a dampener on Gold prices, a pattern which will most likely be extended into New York trading hours.

Gold support is at $1,716 and $1,706. Resistance is $1,733 and $1,739.

Physical Gold demand continues to place a floor on prices

A resurgent dollar weighed on Gold price overnight, as Moody’s announced a slew of rating actions across Europe. Among the notable actions, was the downgrade of Italy, Portugal (both one notch) and Spain (two notches). Not even the UK was left unscathed, receiving a negative outlook (from stable). The agency cited “growing financial and macroeconomic risks emanating from the Eurozone crisis”.

Physical Gold demand continues to place a floor on prices, as we witnessed a resurgence in interest after the overnight dip in prices. Around $1,715 seems to be the level of support currently offered by the physical market. Later this morning, we’ve seen dollar strength relenting, which has eased downward pressure on precious metals. We expect the complex to continue tracking euro/dollar movements today. To this end, we could see a reaction from US retail sales and business inventories data out this afternoon. Better- than-expected data might prompt some appetite for risk, which could see the dollar lose some ground.

Gold support is at $1,712 and $1,705. Resistance is $1,730 and $1,741.

Cautious of gold’s near-term prospects

Gold are benefiting from a weaker dollar, as the euro advanced after the Greek parliament approved the requisite austerity measures over the weekend. However, market optimism might be premature as two conditions still have to be met before the Eurozone leaders’ meeting this Wednesday. Firstly, a further €325m in cuts have to be found, and secondly, a pledge from Greek political leaders that they will maintain the reforms after the country’s general elections (this April).

Turning to CFTC data, net speculative length for COMEX gold grew again, although not with as much gusto as in the previous week. Similar to the previous week, the change in the net position was largely the result of speculative longs being added (37.4 tonnes). However, we saw a resumption in short positioning (the first time in four weeks), with 13.3 tonnes added. The tentative nature of the past week’s moves affirms our suspicion that the aggressive moves of the week before last were largely as a result of overexcitement after the Fed’s dovish announcement. Consequently, we are cautious of gold’s near-term prospects, and would not be surprised to see further weakness emerge this week. ETF buying also slowed markedly.

For COMEX silver, net speculative length continued its dramatic improvement of the past six weeks, with 823.4 tonnes added— the largest gain since August 2011. Participants showed increasing interest with an incredible 730.0 tonnes added to long  positions — the largest gain of the year so far. Futures market positioning is currently the strongest it has been since the dramatic fall in late September last year. If we see a continued strengthening of investment demand, this could help prices shrug off some of the negativity associated with a weak outlook for industrial demand. ETF buying also continues to firm up, with
121.0 tonnes added to holdings this past week.

Gold support is at $1,711 and $1,693. Resistance is $1,741 and $1,753.

Interest in gold from Far East client

Yesterday saw a rally across assets, as reports came through that the Greek government had reached agreement on the required austerity measures. However, these gains were soon reversed as Eurozone finance minsters postponed approval of the bailout package until next week Wednesday, citing that the Greek government’s budget proposal was incomplete. Three conditions remain before approval will be considered—a further €325m in cuts, Greek parliamentary approval (should be this Sunday) and a pledge from Greek political leaders that they will maintain the reforms after the country’s general elections (this
April). While indications are that the Greek parliament will approve these measures, there is enough uncertainty to keep markets on edge as we enter the weekend.

The announcement by the CME that initial margin requirements on gold futures will be dropped has failed to inspire much interest in the metal. Initial margins will fall to $10,125 per contract from $11,475, while the maintenance margin moves from $8,500 to $7,500. This is effective from close of business next Monday.
We are seeing some interest in gold from Far East clients, especially on the physical side after this morning’s fall to $1,720. This should keep gold supported, although, should it fall further we consider the range $1,700 to $1,720 as a good opportunity for establishing short positions.

Gold support is at $1,714 and $1,707. Resistance is $1,741 and $1,760.

Mild speculative buying in gold

 

Gold and silver came under some selling pressure as the dollar strengthened at the onset of New York trading hours. Soon afterward, the dollar weakened again, but gold and silver did not manage to recover much of their losses. Perhaps heightened optimism, sparked by apparent progress on the Greek political wrangling, reduced the safe-haven appeal of these metals. Coalition leaders in Greece have reached agreement on most of the required austerity measures that would enable the country to access the second €130bn in bailout funds, although pension cuts remain a point of contention.

Overnight, we saw mild speculative buying in gold, along with continued interest on dips from physical buyers. Today, the complex remains largely shackled to dollar movements, particularly in relation to the euro — dollar strength has been weigh on price for most of the morning. Today’s ECB announcement is not expected to hold any surprises — interest rates are expected to be kept on hold (although our G10 analyst feels a cut is not entirely implausible). However, markets will most likely to be looking for hints regarding plans for a possible extension of the ECB’s long-term refinancing operation (LTRO), which of course would be bullish for precious metals. As it stands, the there is one more 3-year LTRO scheduled for 29 February.

Gold support is at $1,722 and $1,710. Resistance is $1,750 and $1,765.

Greece, the dollar weakened against the euro yesterday, which sent Gold prices rallying

Despite another postponed deadline in Greece, the dollar weakened against the euro yesterday, which sent Gold prices rallying. The Greek Prime Minister’s meeting with key coalition party leaders was postponed till today — the meeting is being held so that the Prime Minster can obtain the political support for the austerity measures that would ensure cooperation from international creditors. Perhaps the optimism was owing to reports that the ECB was willing to contribute to a restructuring of Greek debt. However, this is subject to a successful conclusion to the current debt restructuring negotiations.

Another contributing factor to yesterday’s dollar weakness and the subsequent push higher for Gold prices, was perhaps Fed Chairman Bernanke’s testimony to Senate Budget Committee. Although he stated nothing new (he had already testified a week earlier to the House Budget Committee), he dampened optimism over Friday’s payroll numbers by reiterating that the Fed felt that the US jobs market was still far from healthy.
Yesterday’s rally was followed by relative inactivity in Asia, which saw prices remain level overnight. This morning, not much has changed, with prices across the complex holding steady.

Physical buying of gold, especially out of China, has been quite strong despite the relatively elevated prices. However, we have seen a slight pull-back in physical demand after yesterday’s rally. Gold support is at $1,705 and $1,695. Resistance is $1,732 and $1,749.

Gold and silver trading relatively range-bound

After initially Gold price drop, yesterday saw gold and silver trading relatively range-bound. PGM managed to get some lift at the start of New York trading hours, although momentum did not carry over into Asian markets. This morning we’ve seen little interest in the complex, despite a relatively steady dollar and indications of rising risk aversion (Asian equity markets ended down and European stock indices are currently trading in the red).

After Greek leaders postponed yesterday’s meeting, markets have grown anxious that agreement and the resolve to adopt the required austerity measures is lacking. The EU has suggested a deal should be reached by 15 February to ensure that the necessary arrangements are made before Greece makes a critical bond payment on 20 March. Eventually this concerns should see renewed interest in gold. However, any upside could be dampened if the dollar should push higher owing to the same concerns.

Gold support is at $1,705 and $1,695. Resistance is $1,732 and $1,749.

Gold popping still above $1,700

Gold price came off sharply on in the wake of the surprising nonfarm payrolls figures, as a stronger dollar and increased risk appetite saw investors shun the complex. After the past week’s rally, some profit-taking most likely also contributed to the downward pressure. The trend has continued into this morning, with concerns over the Eurozone aiding further dollar strength and weighing gold down.

This has been the most aggressive display of confidence in gold we’ve seen in some time. However, given that these moves were largely as a result of the Fed’s dovish announcement, and that before these moves the futures market remained cautious of gold’s prospects, we still would not be surprised to see a pull-back.
ETFs added a relatively strong 14.1 tonnes of gold. ETF holdings now stand at 2,466.0 tonnes — closing in on the 12-month high of 2,469.7 tonnes recorded in early December.

We maintain gold will reach new highs in 2012, probably towards Q3. However, with gold popping still above $1,700, we are witnessing growing resistance from the physical market. We see good value on approach of $1,600.

Physical gold buying is largely on the sidelines

Gold are enjoying some support from safe-haven demand as issues in Eurozone once again weigh on investors’ minds. The Greek Prime Minster appears to be struggling to garner political support for the required austerity measures that would secure extra funding from international lenders. In addition, no clear agreement has been forthcoming on either private or official sector involvement in a Greek debt restructuring.

Despite the Eurozone concerns, the euro has been relatively stable against the dollar, which has allowed the gold to benefit from safe-haven interest without too much hindrance from a strengthening dollar. Physical gold buying is largely on the sidelines, with only minimal interest forthcoming. Base on Standard Bank Physical Gold Flow Index is holding steady, only marginally inside positive territory—a positive value indicates net buying in the market. As mentioned in the base metals section, all eyes are on today’s US non-farm payrolls data. We feel that the likelihood of a disappointing number is slightly greater. This would benefit precious metals, especially gold and silver, as it would strengthen the Fed’s case for an extended period of monetary accommodation.

Gold support is at $1,746 and $1,733. Resistance is $1,768 and $1,775.

Gold prices have moved significantly higher this morning as the dollar has softened

Gold came under pressure from a stronger dollar after a disappointing US consumer confidence reading dented investor optimism. Overnight, not much support was forthcoming from Asian participants. However, despite high prices, we have seen a resurgence in Indian physical demand, partly explained by an appreciating rupee. Base on Standard Bank Gold Physical Flow Index, after two days in negative territory is once again positive (indicative of net buying in the market).

Although relatively stable during Asian trade,Gold prices have moved significantly higher this morning as the dollar has softened. Momentum, though is lacking, without any strong conviction to buy—the preferred strategy remains to buy on dips. In line with last week’s data which showed a slowdown in Eurozone money supply and credit expansion, the recently released ECB report on bank credit standards has revealed a significant tightening of standards in Q4:11, with even more tighter controls expected in Q1:12. This does not bode well for money market liquidity in the region, and we feel warrants more attention than markets are currently paying.

We feel that a drying up of money market liquidity in the Eurozone remains a key risk to commodity prices (even precious metals) over the coming months. Gold support is at $1,732 and $1,718. Resistance is $1,755 and $1,762.

Continued to see lacklustre physical gold interest

In overnight trade in Asia, we continued to see lacklustre physical gold interest, and even some scrap gold and silver coming to market from Japanese recyclers — nevertheless, prices held steady. This opened the way for renewed buying interest this morning off the back of a weaker dollar and renewed optimism as concerns over the Eurozone debt crisis have eased. PGM received an added boost from Japanese vehicle production figures for December, which grew 13.4% y/y.

As we enter month-end, a lot of headlines are underscoring the strong year-to-date performance of precious metals (and commodities in general). Gold is set to have the best January since 2008, while silver is poised for a record January return of the past three decades. Platinum and palladium are up 15.8% YTD and 5.7% YTD, respectively. Some are even declaring resurgent industrial demand as the reason for these gains in silver and PGM. We are sceptical, and the think the reason as more to do with the expectation of growing liquidity, with last week’s dovish announcement by the Fed the primary catalyst.

We still feel that the risk to commodities during Q1:12, are more to the downside. It is too early to expect real demand to support higher commodity prices. The lack of a strong pick-up in the physical markets, even after recent commodity price declines, indicates that growth will remain slow in Q1:12. Another major risk in our view is a stronger dollar, especially against the euro, as the Eurozone continues to struggle to solve its fiscal problems.

Gold support is at $1,725 and $1,709. Resistance is $1,749 and $1,756.

Gold have also succumbed to profit-taking as Chinese participants returned to the market

Along with the other metals, Gold have also succumbed to profit-taking as Chinese participants returned to the market. Downward momentum has continued into this morning, with European markets adopting a risk-off stance. Currently, US equity futures paint a similar picture for US markets, and as such, we expect precious metals to encounter further downside as the day progresses.

Net speculative length for COMEX gold grew, with 29.0 tonnes added last week — the largest gain of the year so far. The change in the net position was largely the result of speculative longs being added (26.0 tonnes). After three weeks of improvement, the net position at 498.4 tonnes is still well below last year’s average of 671.3 tonnes. While these improvements are encouraging, their tentative nature indicated a speculative market that remained not entirely convinced of gold’s short-term prospects ahead of the Fed’s announcement. ETFs added 17.3 tonnes of gold, the strongest weekly rise since mid-November 2011.

Looking ahead to the coming week, the U.S. economic calendar is filled with data points that are likely to influence the price of gold. The PCE Price report, the Fed’s preferred measure of inflation, is due out Monday morning, followed by the Case-Shiller housing report, the Chicago Purchasing Managers’ Index, and Consumer Confidence on Tuesday. Wednesday’s itinerary includes the ADP employment report, as well as the ISM Index – a key gauge of manufacturing activity. Weekly jobless claims are scheduled for Thursday, followed by the critical non-farm payrolls and unemployment data on Friday.

While the Fed already revealed to the market its plans for monetary policy over the next several years, this week’s economic reports could serve to reinforce the central bank’s extremely dovish stance. If the data continues to indicate sluggish growth and challenging labor and housing markets, the gold price is likely to remain well supported. However, if the reports come in ahead of economists’ estimates, Gold may give back a portion of the substantial gains it has generated this month.

Gold is likely to reach a new all-time record high above $2,000 per ounce during the third quarter of 2012

Gold is likely to reach a new all-time record high above $2,000 per ounce during the third quarter of 2012, according to analysts at Barclays Capital.

The firm predicted that the yellow metal will rise 21% by the end of the year, which would put it at approximately $1,892 per ounce.

The broader commodities sector is likely to post solid gains this year, Barclays contended, and precious metals are expected to outperform base metals, energy, and agricultural products. As for silver, the firm forecasted that it will follow a similar trajectory to that of gold by peaking in the third quarter.

In a report to clients, Barclays wrote that “We believe commodity investment flows will rebound in 2012, but will not go back to the very high levels reached in 2009-10. An easing in the unusual factors which capped flows last year, ie, the European debt situation, along with what we expect to be an economic stabilization, should provide upside potential to commodity investments.”

Gold benefited from yesterday’s more-dovish-than-expected announcement from the Fed

Unsurprisingly, Gold benefited from yesterday’s more-dovish-than-expected announcement from the Fed. Policy remained unchanged, however the Fed stated that current conditions “are likely to warrant exceptionally low levels for the federal funds rate at least through to late 2014”. Previously, the Fed had assured markets that the fed funds rate would remain low at least until mid-2013. No concerns over inflation were expressed and the FOMC remained committed to maintaining a “highly accommodative stance for monetary policy”. All this is good news for precious metals, as evidenced by the marked price reaction.

However, we would expect prices to ease off as the euphoria subsides and profit-taking increases. Overnight already, in Asia, we saw some profit-taking emerge which kept precious metals from rallying further—remaining steady for most of the session. While physical demand for gold is largely absent in the Far East (due to New Year celebrations), current prices have scared away any potential interest from Indian buyers. For the first time since mid-November 2011, Standard Bank’s Physical Gold Flow Index (available on SBHF ) has dipped into negative territory, indicative of net selling.

In addition to the lift from the Fed’s statement, concerns over global supply are keeping PGM prices buoyant. Although industrial action at Impala Platinum Holding’s Rustenburg mine appears to be drawing to a close, it is feared that lost production will be greater than originally thought. Concerns have also recently been raised that Russian inventory sales of palladium will slow significantly in 2012.

Gold support is at $1,672 and $1,629. Resistance is $1,737 and $1,757.

Gold enjoyed considerable upside during US trading at the end of last week

Gold enjoyed considerable upside during US trading at the end of last week, led mostly by silver which was buoyed by what appeared to be fund buying. As the latest CFTC data attests (see today’s Focus), ETF buying of silver did show a marked increase over the past week. This morning, the complex continued to push higher, despite the absence of Asian players
away for the lunar New Year celebrations (China, Singapore, Malaysia and Indonesia). Focus has shifted back to the Eurozone debt crisis which is seeing a return of some safe-haven interest, for once not dampened by a strengthening dollar.

Whether this upward momentum can persist, will largely depend on dollar movements. Gold support is at $1,659 and $1,641. Resistance is $1,681 and $1,685.

As long as ‘print and inflate’ is policy, this bull market in gold will continue

The gold price dipped $6.68, or 0.4%, to $1,655.84 per ounce Thursday morning following the latest batch of reports on the state of the U.S. economy. The price of gold climbed to as high as $1,671.40 in overnight trading, but relinquished its gains after weekly jobless claims came in at 352,000 – the lowest level since April 2008. While the employment data improved, the gold price received support from a disappointing December housing starts report, which showed a decline of 4.1% – below the consensus estimate among economists. Lastly, the Consumer Price Index (CPI) came in at unchanged, below the 0.1% rise economists were expecting.

Yesterday the gold price held firm after a mixed report on U.S. inflation. The Producer Price Index for December rose 4.8%, below the 5.1% consensus estimate among economists. However, the Core PPI – which excludes food and energy costs – increased 3.0%, above the 2.8% figure expected.

While inflation has picked up in recent months, the Federal Reserve has noted on several occasions that inflationary expectations remain muted. If inflation remains in check and the labor market continues to struggle, the Fed may be prepared to further expand its balance sheet – according to Michael Feroli, chief U.S. economist at JPMorgan.

In a note to clients, Feroli wrote that “It doesn’t require a whole lot of disappointment on either the growth or inflation side to get quantitative easing going again,” said. “If you get enough deflationary fears, and inflation expectations move down, I don’t think (the Fed) would see a lot of costs” to implementing a third asset purchase program.

Miller Tabak’s Peter Boockvar provided similar thoughts on the Fed and monetary policy. “The balance sheets of the Federal Reserve and ECB have never been greater and both will continue to increase in size,” he contended. “The Bank of Japan, the Bank of England and the Swiss National Bank continue to print large amounts of money.”

As for the price of gold, Boockvar asserted that “As long as ‘print and inflate’ is policy, this bull market in gold will continue.”

Gold prices declined in spite of weakness in the U.S. dollar

The gold price traded slightly lower Wednesday, off $3.70 at $1,648 per ounce. Gold prices declined in spite of weakness in the U.S. dollar, which fell against most of its foreign counterparts. The U.S. Dollar Index (DXY) slid 0.28 to 80.83. The euro rallied against the dollar following news that the International Monetary Fund was set to propose raising its lending capacity by $500 billion. Bond yields on Portuguese, Spanish, and Italian debt all moved lower as sovereign debt concerns eased on rumors of the potential boost in IMF firepower.

The gold price held firm yesterday after Standard & Poor’s downgraded the European Financial Stability Facility (EFSF) to AA from AAA. The ratings agency cited the weakening creditworthiness of several nations providing financial guarantees to the EFSF as a key reason for the downgrade. RBC Capital Markets’ George Gero wrote in a note to clients that “The downgrades of the euro-zone countries means fiscal stimulus is not far behind.” Gero added that the price of gold will continue to be supported by currency devaluation concerns emanating from such stimulus measures.

Overnight Gold prices rallied as the dollar weakened against the euro on easing risk aversion

Overnight Gold prices rallied as the dollar weakened against the euro on easing risk aversion. This increased appetite for risk occurred despite S&P’s downgrade of the European Financial Stability Facility, although given the downgrades of nine Eurozone countries over the weekend, this was hardly surprising, explaining the lack of negative reaction.

Further impetus came from Chinese GDP figures which, while better than expected, showed Q4:11 growth had slowed to 8.9% y/y (from 9.1% y/y in the previous quarter), bolstering hopes of further monetary easing. While the PBOC might contemplate lowering the reserve requirement, we have found that such an action has a relatively benign long-term effect on commodity prices. More aggressive monetary easing measures such as raising the target for new loans and interest rate cuts have the most marked effect on commodity prices (though after a considerable lag in the case of interest rate changes).

However, we feel it is still some time before the PBOC resorts to using these policy instruments.
Gold and silver are the underperformers today in the precious metals complex, maybe as a result of amendments to India’s levy on imports of these metals. As of today, the new import duties are 2% and 6% per ounce on gold and silver respectively. Previously, a flat rate of 300 rupees per 10g for gold (effectively $18.29/oz at 51 rupees per dollar) and 1500 rupees per kilo
(effectively 91c/oz). The new rates equate to roughly around $33/oz and $1.83/oz at current prices for gold and silver respectively—so this represents a significant increase in these duties.
Gold support is at $1,647 and $1,631. Resistance is $1,663 and $1,678.

Market positioning cautiously confident on gold

The reaction of Gold to S&P’s downgrade of nine Eurozone members late last Friday was mostly driven by the consequent dollar strength. As such, Gold lost ground, with safe-haven associated buying providing little or no support. Overnight in Asia , we initially saw the downward trend persist as participants expected further dollar gains. However, with the dollar remaining relatively stable against the euro, we saw some light Asian buying arrest the downward momentum. With
Asian equity markets ending the day mostly down, some of this buying could be attributed to a return of safe-haven interest in the region. Market positioning cautiously confident on gold

Gold support is at $1,629 and $1,615. Resistance is $1,655 and $1,665.

Italian and Spanish debt auctions have downplayed market fears over the Eurozone debt crisis for now

Profit-taking began to weigh on precious metals during New York trading yesterday. This downward momentum has continued into this morning’s trade, although at a slower pace. In addition, yesterday’s successful Italian and Spanish debt auctions have downplayed market fears over the Eurozone debt crisis for now, which has seen support for Gold from safe-haven buying fall away.

This morning release of Chinese foreign-exchange reserves might also be contributing to gold’s downward movement. This can be explained in terms of the negative effect that a slowing down in Chinese foreign-exchange reserve accumulation would have on global liquidity and the ability of governments, especially those of developed nations, to borrow. The central bank’s holdings posted the first q/q fall since Q2:98, dropping from $3.2tr in Q3:11 to $3.18tr in Q4:11. We will be watching this figure over the coming months to see if this marks the beginning of a trend.

For the rest of the day, we could see some reaction to US Q4:11 earning reports or the University of Michigan’s consumer confidence reading. Most importantly, in terms of earning reports, we have JP Morgan today, with analysts expecting profits per share of 90c, down from $1.02. US consumer confidence is expected to have risen to 71.5 in January, from 69.9 in the
previous month.

Gold support is at $1,634 and $1,626. Resistance is $1,657 and $1,671.