Gold News

Crash to $1080 Marks '50% Retracement of Long Bull', Gold Bar & Jewelry Sales Fall in Key Markets

GOLD BARS traded in London's wholesale market rallied to $1107 per ounce on Tuesday, holding 2% above yesterday morning's sudden 'crash' to new half-decade lows as Western stock markets slipped but commodity markets bounced from new 13-year lows.
 
Yields on US and UK government bonds edged higher as prices fell, but Eurozone debt-service costs eased from Monday's 2-week highs.
 
After Shanghai gold volumes hit a two-week high on Monday – with various analysts pointing to a spike in volume as prices spiked 4% lower – Tuesday saw much quieter trade, retreating near recent lows.
 
Compared with the global benchmark of London wholesale quotes, premiums for 1-kilo gold bar held above average, equal to $3 per ounce, on China's domestic contract.
 
"[Monday's] downside breakout accelerated the move towards $1080 levels," says a technical analysis from Stéphanie Aymes' team at London market maker and French investment bank Societe Generale, saying that level "represent the median support line of the down sloping channel within which gold has drifted along over the past 2 years.
 
"More importantly $1080 happens to be the multi-decade channel limit which it breached above in 2009, and the 50% retracement of the uptrend from 1999 low to 2011 high."
 
Fundamentally, last week's comments from the US Federal Reserve on raising Dollar interest rates from 0% by year's end "[are] not news" to the gold market, says Yana Stunis at Chinese-owned ICBC Standard Bank in London.
 
"What is new and developing and coming from all directions," she says, "is the increase in regulations and capital costs that has a direct impact on liquidity and trading activity."
 
New rules starting today under the so-called Volcker Rule – imposed by the US Dodd-Frank Act after the global banking crisis, and restricting commercial banks from trading with their own money – have "spurred sales" of debt derivatives according to the Financial Times, both by banks and by investors worried that liquidity will be missing when they come to sell in future.
 
Interest in the world's benchmark gold price auction – the LBMA Gold Price – today fell back to recent lows, with only 1 round of bids and offers needed to identify a clearing price for the large gold bars dealt both at the morning and afternoon runs.
 
Investor exposure to prices through trust-fund the SPDR Gold ETF (NYSEArca:GLD) yesterday fell to new 8-year lows, cutting another 2 tonnes of gold bullion from the bars needed to back the vehicle's shares.
 
Over in key consumer market India, Monday's price drop saw a " heavy rush of customers" at jewelry retailers, the Mumbai Mirror reports. But premiums for gold bars above London quotes remain low and the summer months are " not a festive or wedding season," notes Kumar Jain, vice-president of the Mumbai Jewellers Association, to Reuters.
 
Gold bar and jewelry retailers in Dubai – the key Middle Eastern market – meantime report a 70% drop in sales so far this summer, with business now quiet after the traditionally strong festival of Eid on the Islamic calendar.
 
In contrast, physical gold and silver exchange BullionVault – 90% of whose users live in Western Europe or North America – saw its 33rd busiest day of the last 2.5 years on Monday, with customers net buyers on the heavest trading volume since October 2014.

Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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