Gold News

Gold pulls back but could run further today

Gold traded gently lower against the US Dollar in Asia today, dipping $3 from Monday's highs to $685 per ounce by the opening in Europe.

Against the European and Japanese currencies gold fell faster, pulled down by a drop in the US Dollar on the foreign exchange markets.

Gold stood almost 1% down from Monday's peak of €522 as Frankfurt opened today. Against the Yen, the spot price of gold fell 1.5% from yesterday's 22-year high to close Tokyo at ¥81,900 per ounce.

Why the dip in the Dollar? Luxembourg's Jean-Claude Juncker said earlier that Europe needs to stay "vigilant" on inflation. That implies higher Eurozone rates ahead.

And a report from ABN Amro released in Sydney early today says the Yen could rise 4.5% in the next month.

But no one's talking up the Pound today. Sterling continues to trade nearly 3% off last month's highs against the Euro, thanks to a speech last night from David Blanchflower – the US academic whose claim that regular sex is worth an income of $50,000 a year helped earn him a job at the Bank of England.

"Looking ahead," said Prof. Blanchflower at the University of Stirling, "the MPC assumes Sterling will gently fall back over the next couple of years."

Against gold, Sterling cost 1/348th of an ounce at today's London opening, just up from the 7-month low it hit at 1/350 early on Monday.

Looking again at the Dollar price of gold, "short-term trend analysis does not rule out profit-taking," says Pradeep Unni, a metals analyst in Dubai, "upon which $678 and $671 would serve as supports."

Brandon Lloyd for Mitsui in Sydney agrees the recent move may have come too fast.

"Looking at the chart of the net non-commercial longs & the spot gold price," he writes today, "these have both consistently increased since the start of the year...and when we look back in history there has always been a sharp correction in both following this degree of an unsaleable rally!

"There is still plenty of room however for the $700 target to be tested in the short term before an 'overbought' concern grips the market & liquidation ensues to cap the rally."

Investec Australia also warns that gold's speculative charms could undo this current rally.
"The latest CFTC report shows there has been a significant build-up of new long positions in the last couple of weeks – seen [both] in the overall longs and increase in open interest...

"Whilst this euphoria lasts all is well, but we feel the market could see a significant correction if these factors start to dissipate."

For the meantime, however, technical analysis says gold has yet to reach drastically "overbought" territory. The 14-day relative strength index (RSI) rose above 70 on Monday, and opened at 70.41 today.

But overbought is commonly defined as an RSI above 80. And longer-term, gold continues to attract new investors both in the City and on Wall Street, as well as amongst private individuals looking to protect their wealth.

Gold is even finding favor with central bankers!

Famous for their disdain of the metal, many reserve managers are now returning to the metal, says a report from Central Banking Publications issued on Monday.

Indeed, one central bank bought 20 tonnes of gold last month. To learn why – and how – this switch in government policy has come about, click here now...

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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