Gold News

Gold dips but "still no reason to be short"

Gold bullion prices ticked $1.50 lower in Asian trade Tuesday, failing to hold Wall Street's overnight close to open London at $668.57 per ounce.

"Spot gold [last week] rallied to a 51-week high and reversed," notes Christopher Langguth in Mitsui's latest technical analysis.

For investors wanting to buy gold today, "the bearish was nearly a 50% correction of the previous nine-week rally. [But] it is still a sideways market and the decline did not hit any vital spots.

"There is still no reason to be short gold." (Get a long-term technical analysis of gold prices here...)

Several pundits today blame Monday's sell-off in the base metals markets for leading gold lower.

Aluminum traded in London fell 1.9% yesterday. Nickel and zinc both fell 2.6%. Copper dropped more than 3% for the day.

"Many [metals] markets look increasingly overheated," warned Tobias Merath in yesterday's weekly metals report for Credit Suisse.

"The copper futures curve has already shifted to a contango pattern which points to improving available supply of the metal."

Contango is when futures contracts for near-term delivery trade below far-dated contracts. Gold is consistently in contango; the physical market is well-supplied, and charges a premium for future delivery.

The platinum market, however, has moved into the opposite set up – known as backwardation. The switch has come despite a looming glut of physical supply, according to Johnson Matthey, the world's largest platinum distributor.

"There is little sign of the actual tightness in the market," says Satoshi Matsunaga, an analyst at Mitsui Bussan Futures.

The backwardation is "mainly because of speculative buying from retail investors and hopes for further investments by funds" – a thin market for platinum investors who've just bought into the much-hyped exchange-traded platinum funds launched last month.

"Gold remains our preferred precious metal," says Merath at Credit Suisse, "in light of the growing investor interest as well as upbeat data coming from the physical [gold] market.

"The fact that central bank gold sales are now lagging considerably behind the previous years' levels will probably lend additional impetus to gold prices."

In the currency markets overnight, the major pairings held steady ahead of today's US inflation data, due at 13:30 British Summer Time.

Gold priced in Pounds Sterling began the day 1% lower from Monday's London open at £337.60.

The Pound then fell back on the foreign exchanges, pushed down from $1.9827 to $1.9772 by news that consumer price inflation slipped back to 2.8% in April from March's 3.1% record.

That still leaves the UK suffering the highest rate of inflation in Europe, however. On the old Retail Price Index, inflation ran at 4.5% last month – completing the worst three-monthly period for loss of purchasing power in the Pound since Sept. 1991.

(Worried about the fundamental outlook for Sterling? Read more here...)

In Germany, meantime, first quarter GDP growth came in ahead of forecasts at 3.6% year-on-year. That news helped push the Euro up to a one-month high versus the Pound.

It left the Euro price of gold trailing 2.3% from this time last month, down €5 from yesterday's London start at €493.50 per ounce.

Could this pullback in Euro gold prices offer German, French, Irish and Italian investors a great buying opportunity?

For a "big picture" view of the Euro single currency's history and future, click here now...

Adrian Ash

Adrian Ash, BullionVault Gold News

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.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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