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.

Poor demand in physical gold from China ahead of the New Year celebrations

Gold were unable to sustain their upward momentum into the overnight session in Asia, trading mostly sideways. Poor demand out of China, both in terms of futures and physical buyers, contributed to the lacklustre performance. This is surprising, given that we usually see a seasonal pick-up in physical gold demand from China ahead of the New Year celebrations.

This morning, we saw a slight upward bias return, most likely on concerns over the Eurozone and associated safe-haven buying. A sudden drop in the dollar after successful Italian and Spanish bond auctions has seen a resurgence in Gold. However, given the problems facing the Eurozone, we don’t feel this can adequately boost confidence. Consequently, we regard
this as a knee-jerk reaction in the euro, which should soon fade taking Gold back down.

In terms of today’s ECB announcement, with no rate cut generally expected by the market. However, our G10 analysts thinks otherwise. Especially gold and silver, could benefit from a surprise cut as this would make it clear that the central bank is committed to maintaining liquidity. Eskom’s troubles meeting South Africa’s electricity demand continue to grab headlines. As we mentioned yesterday, we feel the attention is overdone . As yet, no planned residential blackouts (load-shedding) have been announced, which would most likely be Eskom’s first course of action should power supply come under serious stress.

Gold support is at $1,641 and $1,627. Resistance is $1,659 and $1,662.

Eurozone debt crisis as talks between German and French leaders appeared to be moving along

Gold benefited from yesterday’s renewed optimism off the back of

1. Hopes that China would soon engage in monetary easing after the latest trade figures showed slowing foreign demand,
2. Allayed fears over the Eurozone debt crisis as talks between German and French leaders appeared to be moving along, and
3. Generally dovish sentiments expressed by Fed members addressing various forums despite the continued improvement in US data.

Momentum, however, failed to carry over into overnight trade, with Asian investors not expressing much interest in the higher prices. As European markets opened this morning, prices once again rallied, initially prompted by short-covering which appeared to make way for some fresh buying. However, this buying is dissipating as yesterday’s optimism is fading. Currently, European stocks are mostly trading in the red and US equity futures signal further losses later today. Consequently, we’ve already seen Gold come off quite sharply, with palladium the hardest hit.

Perhaps markets might take heart again from today’s scheduled Fed speakers or the release of the Fed’s Beige Book, but for now it seems as if Gold will continue to lose ground.

Gold support is at $1,617 and $1,597. Resistance is $1,650 and $1,661.

Gold are benefiting from a broadbased buying across asset classes

As anticipated, this week’s meetings between German and French leaders is ensuring that markets remain focused on the Eurozone debt crisis, which is keeping interest in Gold alive. Yesterday’s meeting revealed nothing startling, with German Chancellor Merkel merely commenting that negotiations were progressing well and that we might see signed commitment
within the next month. With another meeting scheduled for later today, markets seem to be rather optimistic (although no particular announcements are expected since no press conference is planned).

Gold are benefiting from a broadbased buying across asset classes. Most notably, and unusually, we’ve seen PGM take the lead today. Given that recently PGM hasn’t been benefiting as much
as gold and silver from safe-haven demand, the current upward momentum seems mostly to do with the renewed optimism in markets that has also pushed base metals, as well as equity markets higher. With US equity futures pointing to a day of gains, we expect this momentum to continue to keep precious metals on the up.

Another support factor for PGM is yesterday’s announcement by South Africa’s major power provider, Eskom, that it is currently struggling to meet electricity demand. More generating plants have been taken offline for maintenance than the utility had originally anticipated. This, it said, has raised the risk that the country might be subject to a repeat of the 2008 power outages,
which severely curtailed platinum production.

Gold support is at $1,618 and $1,602. Resistance is $1,637 and $1,640.

Gold as a safe-haven subsided on bolstered confidence in the strength of the economy

After better-then-expected non-farm payrolls data on Friday, interest in Gold as a safe-haven subsided on bolstered confidence in the strength of the economy. However, this optimism has failed to translate into significant risk-taking in Asian trade early this morning, which saw Gold win back some of Friday’s losses.

However, price gains failed to garner much momentum, partly as a result of thin trading volumes due to Japanese markets being closed for a public holiday. This morning, we’ve seen the complex lose some ground again, although with focus once again on the Eurozone debt crisis ahead of a meeting between German and French leaders later today, we could see some renewed safe-haven interest. In addition, tensions surrounding Iran should keep investors sufficiently nervous to warrant some demand for Gold as a store of value.

Looking at the latest CFTC data, net speculative length for COMEX gold eased off marginally, with 0.4 tonnes shed. The slight deterioration brings the net position to a 12-month low of 436.6 tonnes. Although only a modest decrease this past week, the sustained deterioration (this marks the fourth week of decline) in the net position is a signal that the speculative market remains
wary of gold’s prospects, which might explain the failure of gold to sustain upward momentum.

Net speculative for COMEX silver length saw a substantial increase into the New Year, with 407.2 tonnes added — the largest increase since August 2011. While this past week’s improvement is encouraging, market positioning still appears weak, with net speculative length at 2,179.9 tonnes (the 2011 average is 4,538.8 tonnes) and short positions totalling 2,287.2 tonnes (1,140.5 tonnes was the average last year). The lack of investor confidence in the silver market is more readily apparent in ETF holdings which show that ETFs were net sellers of silver for the fourth consecutive week — 88.5 tonnes were shed last week.

Gold support is at $1,606 and $1,596. Resistance is $1,630 and $1,642.

Gold and silver have continued to enjoy solid support from investors concerned over the Eurozone

Gold and silver have continued to enjoy solid support from investors concerned over the Eurozone and, to some extent, the tensions surrounding Iran. For gold, buying on dips remains the favoured strategy as participants appear to be positioning for further upside. With regard to silver, investors seem more cautious. PGM have not benefited much from rising safe-haven demand, and appear to be weighed down by the stronger dollar, having remained relatively range-bound since early yesterday.

Physical demand is remains relatively light, although we have seen a pick-up in Indian buying ahead of the upcoming religious festivities. However, as we’ve highlighted before, the weaker rupee is dampening this demand, and we don’t expect it to provide the same measure of support that it has in previous years. Chinese demand for physical gold has been fairly strong this week ahead of New Year celebrations which begin 23 January.

Better-than-expected ADP employment change data prompted a sell-off in gold yesterday afternoon, although this was shortlived. Given this reaction we could see another dip in response to this afternoon’s non-farm payrolls data, should the numbers boost confidence in the US economy and inspire more risk taking. Analysts are expecting 155k jobs to be added in December, a strong improvement on the 120k increase seen in November. A rise in the unemployment rate to 8.7% from 8.6% is expected.

Gold support is at $1,596 and $1,582. Resistance is $1,623 and $1,634.

Gold - physical interest coming out of Asia, mostly China, on approach of the New Year celebrations

Despite lacklustre activity, gold managed to hold on to it gains in overnight trading. We are seeing decent physical interest coming out of Asia, mostly China, on approach of the New Year celebrations there that will occur earlier this year than usual.

Investor support is mild, although ongoing tensions in Iran have been keeping interest alive.
US vehicle sales data, released overnight, was mildly supportive of PGM. Total vehicle sales for December were slightly better than expected, at 13.52m (consensus: 13.5m), but still a drop from the 13.59m seen in November. Growth in Japanese vehicles sales declined to 23.5% y/y in December, from 24.1% y/y in November. Given the relatively modest nature of these changes, PGM markets seem to be ignoring the data, rather following the general trend of the rest of the precious metals complex.

Once again, movements in the dollar seem to be most crucial in dictating the path for precious metals today. As long as confidence in the Eurozone is being undermined, we could see a strengthening dollar cut into any upside for Gold, which might result from safe-haven demand. We don’t expect much market activity today as participants remain on the sidelines ahead of tomorrow’s non-farm payrolls data.

Gold support is at $1,596 and $1,582. Resistance is $1,623 and $1,634.

Gold largely track movements in the dollar

After pushing through the $1.600 level in New York trading, gold surrendered some gains overnight as Asian participants engaged in light profit-taking. Adding to yesterday’s optimism over China’s economy (the world’s second-largest consumer of gold), prices are receiving further support from the prospect of a surge in jewellery demand that analysts are forecasting for
2012.

However, this optimism has been largely balanced by a bearish report from the Bombay Bullion Association that predicts a 48% q/q drop in India’s gold imports for Q1:12 (India is the world’s largest consumer of gold). We acknowledge that the weaker rupee and higher interest rates pose a threat to Indian demand for gold, and we would not expect the seasonal effect to be as pronounced in Q1:12 as it has in previous years.

This morning we’ve seen gold largely track movements in the dollar, with some early but transitory dollar weakness contributing to a concomitant dip in the gold price. The rest of the precious metals have largely tracked gold, although palladium appears particularly weighed down perhaps due to lingering doubts over the health of the global economy.

To this end, the markets will be looking to US factory orders data out this afternoon. Analysts expect a spectacular recovery to 2.0% m/m growth in November, after October’s 0.4% m/m contraction. US vehicle sales data will be released overnight, which could have an influence on PGM. Total vehicle sales are expected to drop moderately in December to 13.5m (from 13.59m in November).

Gold support is at $1,580 and $1,552. Resistance is $1,623 and $1,636.

gold price surged higher on the first trading day of 2012

The gold price surged higher on the first trading day of 2012, rising $22.50 to $1,588 per ounce. While the price of gold finished up 10.0% in 2011, the yellow metal fell 10.4% in December, marking its second-worst month since the financial crisis of 2008.

Amid the turmoil in Europe, investors have sought refuge in the U.S. dollar – the world’s reserve currency – a development that has led to widespread liquidation in investments tied to the gold price. Gold stocks have been hit particularly hard as a result, evidenced by the 16.1% 2011 annual drop in the Market Vectors Gold Miners ETF (GDX). Barrick Gold (ABX), the world’s largest gold producer, retreated 14.0% last year. One of the best indicators of the sector’s dismal performance last year was that Newmont Mining (NEM) – the only gold stock included in the S&P 500 Index – fell 0.1% last year but was still one of the best-performing gold producers.