Gold Price Rally Fades After Shanghai Volume Jumps on Record China Trade Data, Technical Analysts Split

GOLD PRICES fell back Monday morning in London after regaining one-third of Friday's 3% plunge on strong US jobs data as China reported its biggest-ever trade surplus.

 

Exports weakened slightly in January, Beijing said, but imports sank by one-fifth – led by a 40% drop in some commodity inflows such as coal.

 

"China's gold imports fell throughout 2014," says a note from US investment bank Morgan Stanley, "despite the trend decline in the metal's price.

 

"Buyers were deterred by subdued trading conditions, suggesting that weak prices would move even lower."

 

"The Chinese had little interest in gold Friday," says a note from Swiss refining and finance group MKS, "despite the Shanghai Gold Exchange premium [holding] up around $3-4 per ounce [above London quoutes] and the Chinese New Year fast approaching."

 

Monday's sharply lower Dollar gold price saw trading volume in Shanghai's most active gold contract hit a 3-week high, with the premium above comparable London quotes – which makes importing gold to the world's No.2 consumer market ore or less attractive to wholesalers – ending the session at $3.80 per ounce.

 

Friday's "knee-jerk reaction in the gold market [to the US non-farm payrolls report] was predictably negative," says a note from London consultancy Capital Economics.

 

"If US Fed [interest-rate] tightening is gradual...there would be plenty of scope for other, more positive factors to dominate," such as a renewed Eurozone crisis, looser monetary policy elsewhere, "and/or a stronger pick-up in the key emerging markets for gold, notably China and India."

 

Shorter-term however, "Momentum indicators have shifted back to a decisively bearish bias," says a technical analysis from London market-maker Scotia Mocatta's New York office.

 

Gold prices "closed Friday below the key support at the 200-day moving average," says technical analysis from Swiss investment and London bullion bank UBS, pointing to what it calls "nearest support" at $1220 per ounce – "the 50% retracement of" November to January's 15% jump.

 

But while gold priced in Dollars has confirmed "an Inverted Head and Shoulders pattern" at $1223, says technical analyst Stephanie Aymes at French bank and London market-maker Societe Generale, "daily indicators [are] holding a three-month support line (blue horizontal) which suggests a rebound is close at hand."

 

SocGen's technical analyst is now bullish gold prices on a 1-3 month horizon, setting a target of $1342 per ounce – the mid-2014 high which Dollar gold prices failed to reach with this New Year's rally.