Gold News

$1200 Gold 'Breaks Downtrends', Defies 2016 Price Forecasts as Equities Sink, Dollar Falls

GOLD PRICES recovered most of a 1.1% overnight drop from yesterday's 8-month high of $1200 per ounce in London trade Tuesday, rising back to $1198 as European stock markets slumped again, and the Dollar fell on the FX market, following a 5% plunge in Japanese equities.
 
China and most of Asia remained shut for the Lunar New Year, the heaviest consumer gold-buying spree outside India's autumn festival of Diwali.
 
Major government bond prices rose, pushing 10-year US Treasury yields down to new 12-month lows at 1.73%, while US crude oil held below $30 per barrel – a level seen on the way up in 2002.
 
Gold's peak at $1200 on Monday was barely 2.5% below the peak 2016 price forecast on average last week by professional analysts competing in trade body the London Bullion Market Association's annual survey.
 
Now averaging $1109 since 1st January, the 2016 price in Dollars so far stands $6 per ounce above the average LBMA gold forecast for the full-year.
 
"Gold has staged a rapid and steep recovery" from late-2015's drop to the key level of $1045, says a new technical analysis of gold price charts from French investment bank and London bullion market maker Societe Generale.
 
"Last month, gold formed a definite bullish candlestick formation at $1045 levels," SocGen says, pointing to a monthly Morning Star – deemed a key reversal pattern by technical analysis – plus "confirmed bullish patterns in the form of double bottom and inverted [head and shoulders] after which the recovery has accelerated."
 
"It has now breached above a multi-year descending trend line...and is likely to head towards key resistance at [the] down-sloping channel drawn since 2013 at $1225...which also corresponds with last May highs."
 
"We really think something interesting is happening here," said materials sector analyst John Bridges at US investment and London bullion bank J.P.Morgan to Bloomberg earlier.
 
"It's exciting to see some of the longer-term downtrend lines broken."
 
SocGen's charts show the latest jump in gold prices breaking through both the 2015 downtrend (joining last year's May and October highs) and a longer downtrend starting 3.5 years ago (joining October 2012 with October 2015's high).
 
Fundamentally, Bridges at J.P.Morgan goes on, and "even though quite a lot of money has been spent in the gold [mining] space over the last decade, there's not a lot of new capacity.
 
"Gold production is rolling over."
 
Global gold mining output set a new all-time record in 2015 – the seventh in a row – according to specialist analysts Thomson Reuters GFMS, but the final 3 months of the year saw the start of what will prove a protracted decline.
 
Reuters today quoted data from a Russian lobby group saying the world's No.3 gold producer nation grew output by 2% in 2015, overtaking No.2 Australia with 294 tonnes.
 
Gold investment demand through leading ETF proxy the SPDR Gold Trust (NYSEArca:GLD) meantime rose again Monday on the spike to $1200 per ounce, requiring 703 tonnes of bullion to back the product – its largest quantity since July 2015, but still have the amount needed for the GLD's peak holdings of end-2012.
 
The US Dollar fell Tuesday to 3.5-month lows against the Euro, pulling the price of gold for German and French investors 1.4% below yesterday's spike to July 2015 levels.

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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