Gold News

Gold Price Drops 1.2% as Stocks, Dollar Jump on 4-Year Low in US Trade Deficit

GOLD PRICE gains of $10 per ounce overnight were reversed in London trade Tuesday lunchtime, with the metal then falling to 3-session lows as the Dollar rose following much stronger than expected US data.
 
The gold price dropped to a $1225 per ounce, losing 1.2% for the day, after new figures showed the US trade deficit shrinking to a 4-year low of $34 billion in November.
 
US stock markets rose with the Dollar, taking the S&P500 within 0.5% of its record-high close at 1848 on New Year's Eve last week. Treasury bonds were little moved.
 
"Equities look poised to continue outpacing the yellow metal in the years ahead," reckon Citigroup research analysts in a chart measuring the S&P in terms of the gold price. 
 
"There still appears to be a fair amount of room for the recent relative price pattern to continue," they conclude, citing previous instances over the last 80 years when the ratio of US equities to gold prices rallied from a significant low.
 
Gold price premiums above international benchmarks had earlier risen from $16 to $18 per ounce Tuesday morning in Shanghai, as brisk trade ahead of the Chinese New Year helped world prices hold near $1240.
 
The Shanghai gold price reached a $30 premium in mid-summer 2013, after the metal first slumped to the $1180s level seen again last week on New Year's Eve.
 
"Gold now has a fairly decent double bottom around $1185," said one London trading desk in a technical note on price this morning, "so that should be good medium term support."
 
"Silver could [also] be forming a double bottom pattern," says price analysis from French investment and London bullion bank Societe Generale, pointing to December's two lows at $18.85.
 
For the gold price, counters Commerzbank's Axel Rudolph, "We still expect the $1184/$1180 support zone to give way in the first half of this year, but have to be vigilant for the possibility of a strong bounce back to the $1350 region first."
 
Together with China's seasonal impact on gold, set to culminate with the start of the Year of the Horse on January 31st, "Gold buying related to annual index rebalancing is much anticipated," says Swiss bank and bullion market-maker UBS's analyst Joni Teves.
 
Typically driving the gold price higher when commodity basket revisions spur portfolio reweightings, the 2014 move "may currently be amplified, squeezing the market higher," says Teves, "as [trading] activity is still relatively subdued, with [market] participants only starting to return from the holiday break."
 
Meantime in India today, "we should not tamper with the [current anti-gold] regime," said economic affairs secretary Arvind Mayaram to the Press Trust of India, pointing to March as the earliest date for any reconsideration.
 
The former world No.1 gold consumer nation, India was overtaken by China in 2013 after the government effectively banned new imports with strict financing and re-export rules starting in June.
 
"Our point is that we need to keep the current account deficit low. We cannot afford to let it go, at least for this fiscal year."

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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