Gold News

Thin Gold Trading Whips Price on Labor Day, Speculators "Shy of Being Short" on Syria & US Tensions

THIN gold trading saw the price of bullion slip Monday morning, with an early $25 drop recovered as Asian and European stock markets rose following strong manufacturing data.
 
With volumes low as the US stayed closed for the end-of-summer Labor Day holiday, gold was trading at $1389 per ounce by lunchtime in London, just over 3% below last week's three-month high.
 
The price of silver meantime whipped around $24.00 per ounce, almost 5% beneath Wednesday's spike above $25 – the highest level since mid-April.
 
Commodity prices fell, as did major government bonds.
 
Official PMI data in China showed the manufacturing sector growing at the best rate in 16 months, while the private Markit consultancy's gauge showed expansion for the first time since April.
 
Markit's PMI data for Italy and Spain leapt ahead of analyst forecasts.
 
"Uncertainty on whether or not military action will be taken against Syria has taken off some of gold’s safe-haven bid," reckons Joni Teves at Swiss investment and bullion bank UBS in London.
 
But amongst hedge funds trading gold, "the recent move in positioning clearly indicates further reluctance to be short," says Teves, "as geopolitical tensions add to looming event risks out of the US" such as the possible tapering of Federal Reserve asset purchases, and then the likely debt-ceiling deadline in mid-October.
 
Speculators trading gold cut the number of bearish bets on US futures and options they held by 24% in the week-ending last Tuesday – the fastest pace since March 2009 – reducing it to near 7-month lows.
 
Net of those bearish bets, the so-called "net long" position held by speculators trading gold derivatives rose 173% from a month earlier, its fastest rise since June 2005.
 
"First it was short-covering," said US consultancy CPM Group's Jeffrey Christian to BNN late last week – "about half of the shorts liquidated. Now you're seeing some long building, and you're seeing trend followers.
 
"Soon as the price stalls out, and it will, you'll see those trend followers back off."
 
But "Bullish potential is beginning to emerge for gold," reckons a technical gold trading note from London market-maker Barclays in London.
 
"Price charts highlight the rare occurrence of a strong bullish month on the heels of corrective extremes, which previously led to a significant move higher."
 
Last week's rise above $1400 per ounce saw "considerably stronger demand" for gold investment bars, says a note from German refining group Heraeus. But "it resulted in lower premiums for physical metal in Asia...and some market participants cashed in on the higher price level."
 
After a surge in first-half sales of gold coins worldwide, the US Mint reported its weakest month in six years for August.
 
Sales of American Eagle and Buffalo gold coins halved last month from July 2012.
 
In the wholesale and derivative markets, "players [trading gold] are likely to be focusing most of their attention this week on the European Central Bank's meeting on Thursday and the publication of the US labour market report on Friday," says a note from German bullion dealers Commerzbank.
 
Meantime in India – the world's No.1 gold consumer – the government's raft of anti-gold-import rules have led to a doubling in gold smuggling since April, the Business Standard says today, citing strong flows from neighboring Pakistan and Bangladesh.
 
The Reserve Bank of India today denied press reports of a plan to buy gold from households and temples so it could offering it for sale to reduce the country's annual imports.
 
On the supply side, two thirds of the 120,000 gold mine-workers in South Africa – now the world's fifth largest producer – will begin a two-day strike over pay tomorrow.
 
World No.2 Australia grew its gold output by 4.7% between April and July, according to private consultancy Surbiton Associates, adding 3 tonnes from Q2 2012 to produce 67 tonnes.
 

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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