Gold News

Gold Prices Slip, Moving Averages 'Key' on Technical Analysis as Lease Rates Go Below Zero

GOLD PRICES failed to hold a rally from 1-week lows in London on Thursday, dropping back towards what technical analysts called 'support' around key moving averages as Western stock markets erased earlier losses following yesterday's sharp gains to multi-month highs.
 
Singapore surprised traders and analysts by easing its monetary policy, aiming for 0% appreciation of its currency against the US Dollar.
 
The Bank of England then surprised no-one by holding its UK lending rate at 0.5% for the 85th month running.
 
"With [Wednesday's] down draft," says a technical analysis from Canadian bank and bullion market maker Scotiabank, "gold formed an evening star pattern on the chart, which could point to some downside in the near-term...likely [to] test the $1231 support" – the 50-day moving average of gold prices.
 
Gold overnight touched $1228 per ounce in Asian trade, where contract prices in Shanghai – now due to launch a Chinese Yuan benchmark 'gold fixing' amongst 12 banks and 6 other participants on Tuesday next week – had earlier slipped 0.9% to a 1-week low on the strongest volume since last Thursday.
 
Gold then rose $10 per ounce over the 45 minutes following the Shanghai close, before dropping back $10 to $1235 in London ahead of the New York open.
 
Looking at gold's exponential moving average – a measure of underlying trends which gives more weight to recent prices within the range – "Prices are hovering around the 200-EMA  line," says a technical analysis from Dutch bank ING, noting how gold failed to rise above that line in mid-February, but "the downside reaction was very shallow."
 
This marked "a totally different situation" from 2013 and 2014, when "prices sold off heavily after testing this moving average line," says ING, concluding that gold's "current consolidation around the EMA-200 line [is] a sign of strength...suggesting prices are building momentum."
 
Fundamentally however, "The strong increase in gold prices [so far in 2016] has dented demand for the metal," says a note from French investment and bullion bank Natixis, reporting an increase in the cost of lending gold (which carries storage and insurance costs) known as the forward rate.
 
This rising cost of lending gold – driven by lower demand to borrow metal – means that "for the first time since early 2013, gold lease rates have turned negative," the bank goes on, highlighting how gold bullion borrowers can now earn a small return on the payment received from a gold lender versus the rate of interest they would otherwise have earned on cash deposits, albeit of just 0.02% per annum on 3-month deals.
Chart of 3-month gold lease rate from Natixis
 
"At the same time, silver lease rates have also dropped sharply," says Natixis.
 
Silver prices today failed to follow gold lower, holding just 10 cents shy of yesterday's new 6-month high of $16.30 per ounce.
 
On the supply side meantime, and after 2015 set the 7th consecutive record for global gold mining output, Polyus Gold – the largest gold miner in world No.3 producer nation Russia – said Thursday it grew first-quarter output by 9% from Q1 2015.
 
February's gold output from world No.6 nation South Africa rose over 11% per year, reports the Reuters news-wire.

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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