Gold News

After Short-Covering Rally, Buy Gold 'On a Dip' Traders Advised as US Inflation Rises, Dollar Price Slips

BUY GOLD bids eased back in London trade Tuesday lunchtime, pulling spot prices down from a new 2-week high after US consumer price data beat forecasts of negative inflation.
 
Last month's headline CPI  showed 0.0% growth from February 2014.
 
So-called 'core' CPI – with food and fuel excluded – rose 1.7% annually, just ahead of the Wall Street consensus.
 
Separate PMI data from HSBC/Markit earlier said China's manufacturing sector shrank again this month after stabilizing in February.
 
The US Dollar rallied from new 2-week lows on the FX market, knocking the Euro back from $1.10 and edging prices to buy gold down $7 per ounce from $1195.
 
"Short-covering was a key motivator behind [last week's] rally," says a note from the Hong Kong team at Japanese trading house Mitsui Precious Metals.
 
"With resurgent commodity markets," agrees David Govett in London for brokers Marex Spectron, "the reason is straightforward – short covering," with bearish traders forced to buy gold contracts to close their short positions at a loss.
 
But following last week's jump in gold prices from near 5-year lows, "So far we have seen no pick up in futures volume above $1180 per ounce," cautions a note from Danish bank and spread-betting bookmakers Saxo Group.
 
"[This] could indicate that most tactical stops have already been taken out."
 
Besides last week's short covering, however, prices to buy gold rose on "a reversal in the US Dollar," says Jonathan Butler at Japanese conglomerate Mitsubishi.
 
"With a little further to run [in that pullback], gold's uptrend could be sustained."
 
Euro gold prices rose Tuesday to €1090 per ounce, just shy of last week's finishing level.
 
British savers wanting to buy gold earlier saw the price in Sterling briefly pop above £800 per ounce for the first time in 5 weeks after UK inflation slowed to 0% from a year ago on official data.
 
"Gold has stabilised above the support zone of $1150," says the latest technical chart analysis from French investment bank and London bullion market maker Societe Generale.
 
"An extended recovery looks more plausible," it goes on, pointing to $1198 "and even $1223" over the next 1-3 months.
 
"It's time to buy a dip," agrees Bank of America Merrill Lynch's short-term trading team, advising an order to buy gold on a drop below $1175 – last seen at the start of US trade Friday.
 
"Pullbacks should not exceed the March 17 low at $1143," BAML adds, setting targets at $1307 and then $1345 per ounce.

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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