Gold News

Gold Price Surge "Merely Short-Covering", Stalls at "Channel Resistance" as Silver Peaks $1 Above New 4.5-Year Low

GOLD PRICES touched two-session highs at $1212 per ounce Tuesday morning in London, extending their rally from yesterday's trip to 2013's double-bottom near $1180 to 2.5% before easing back.
 
After softening further overnight, the US Dollar rebounded against the Euro following what Frankfurt's FAZ newspaper calls a "collapse" in Germany's industrial production data.
 
Silver prices retreated meantime from a 5.6% bounce – peaking almost $1 above Monday's new 4.5-year low at $16.68 – but still recorded a 1-week high at London's midday "fix" of $17.31.
 
The giant iShares Silver trust fund (NYSEArca:SLV) lost metal on Monday as investors sold shares for the first time since mid-July's price peak.
 
Commodity indices ticked lower today after also rallying sharply.
 
Major government bond prices again pushed higher, nudging 10-year US yields down to 2.41%, while Asian and European stock markets fell hard.
 
Noting "immediate [downtrend] channel resistance" at $1213 per ounce, gold prices "[are] due for a corrective rebound towards $1224, possibly even $1241, last June’s low," says a technical analysis from French investment bank and London market-maker Societe Generale.
 
But "the technical picture hints to further downside," counters fellow London market maker Scotia Mocatta, "as trend indicators remain bearish."
 
Looking to Wednesday's return of Chinese markets, "From a price perspective," says Swiss bank UBS, "this rebound means gold in CNY is pretty much flat from where it was before the Golden Week holidays."
 
Rather than deterring Chinese wholesalers however, the fact "gold has held key support for a third time [at $1180] and has recovered...could actually encourage buyers here," says UBS.
 
"Physical players tend to prefer stability."
 
Dealers at Australia's ANZ Bank say they "detected a slight pickup in Chinese physical demand just prior to the Golden Week holidays." But they don't believe it's "yet strong enough to support the price in any meaningful way."
 
Monday and early Tuesday's rally, says brokerage Marex Spectron's London head, David Govett, "was merely a reaction to a weaker Dollar and large scale short covering" – with bearish traders forced to close positions at a loss, nudging prices higher again.
 
"Other than a short-covering bounce off oversold conditions," agrees US brokerage INTL FCStone, "we still expect the rallies to eventually fizzle."
 
Platinum also turned lower from a sharp rally in London trade Tuesday morning, but its premium to gold prices nearly doubled from Monday's multi-month low of $20 per ounce.
 
Given the "risks of a more permanent reduction" in South Africa's palladium output, plus growth in Chinese automotive demand, Deutsche Bank today recommended a "short gold, long palladium" trade to its clients.
 
Societe Generale closed the same trade last Friday, advising its clients to bank 24% gains after betting gold would fall, and palladium would gain, back in March because "we feel uncomfortable about the pace of the recent sell-off in palladium and platinum.
 
"Please note," SocGen adds however, "we remain bearish on gold and maintain our recommendation to short gold outright."

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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