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%.