Gold News

Monday's 'Bullish Engulfing' Surge in Gold Price Fails to Spur Asian Buying, Short-Covering 'Only Short Term Boost'

GOLD PRICES slipped from yesterday's dramatic 8% surge in London trade Tuesday, edging back below $1200 per ounce as the US Dollar rose and industrial commodities also drifted after crude oil's sharp bounce.
 
Silver prices were firmer, holding four-fifths of Monday's 16% jump from new 5.5-year lows at $14.40 per ounce.
 
London's FTSE100 index reversed Monday's 1% drop, but Eurozone equities held flat overall ahead of this week's European Central Bank vote on interest rates and QE policy.
 
"The move yesterday was a very big technical reversal," says one London dealing desk in a note on gold prices, calling Monday's surge "a 'bullish engulfing pattern' [which] should not be ignored."
 
But in physical gold bullion, it adds, and "despite the change in the 80/20 rule in India are not seeing any pickup in demand. To the contrary it continues to lag."
 
"Shorts exiting the market," says bullion-bank HSBC's analyst James Steel, pointing to bearish traders forced to close their positions during Monday's price jump, "will provide only near-term strength."
 
Speculative short gold positions in US Comex future and options had already shrunk by 10% in the week-ending last Tuesday, updated figures from US regulator the CFTC show, extending the 15% drop of the week before.
 
"The US Dollar still appears to be the favored currency," Steel adds, "and may provide greater headwinds for gold."
 
US and especially UK bond yields rose sharply Tuesday, while major Eurozone bond yields ticked higher from record lows as prices fell.
 
Greek debt rose in price however, pushing 10-year yields below 8%.
 
"As the recent experience in the US and Japan has shown," writes former ECB member Lorenzo Bin Smaghi in a blog at the Financial Times, urging his successor's to take decisive action, "it is the expectation that the central bank will embark on massive [QE] asset purchase that matters most, more than the purchase itself.
 
"The more markets are convinced that the policy will be successful, the less the central bank may need to actually intervene."
 
But economists doubt the ECB will start a dramatic new phase of QE, the FT reports elsewhere, expecting instead that current president Mario Draghi "will want to send a reassuring signal to the market that inaction today may give way to more muscular action tomorrow."
 
Spiking 6.3% for Euro investors on Monday, gold prices held above €960 per ounce today, trading some €55 above last month's return to the lows of mid-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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