Gold News

Gold "Breaks Downtrend" But Scrap Jewelry Flows Crucial on Weak Indian Festival Buying

The price of Gold gave back an early 0.6% rise in London on Monday, retreating to last week's close in Dollars but recording its best AM Gold Fix since April 2nd at $911.75 an ounce.

For UK and European investors now Ready to Buy  Gold the price held 0.8% better, while global stock prices (in local currency) fell almost 1.0% on average.

Government debt prices ticked higher – and commodity prices sank across the board, knocking 5% off crude oil, 3% off copper futures, and 4% off soybeans – as emergency measures to contain the Mexican swine flu outbreak spread to screening travelers landing in Australia, Japan, Singapore and South Korea.

Hong Kong raised its official response from "alert" to "serious".

"Gold has broken up through the downtrend line [starting mid-Feb.] but it is too early to call a decisive break higher," reckons Phil Smith, writing for Reuters Technical India this weekend.

Pointing to the two peaks at $1,000 an ounce reached in March '08 and Feb. '09, "We have to wait...to find out whether gold will form a large double top reversal pattern here," he adds.

"Overall, in technical terms both the daily and weekly charts are bearish."

Gold Buying demand from India – the world's No.1 consumer market – has risen sharply in the last three days, pushing local prices 140 Rupees higher to retouch 15,000 per 10 grams as the southern states prepared for today's Akshaya Thrithiya festival.

This auspicious event on the Hindu calendar saw new gold demand fail to match previous years, however, with some companies offering special discount on labor charges in a bid to boost gold jewelry sales, according to Commodity Online in Mumbai.

"The market response remained low as people preferred to cash in their gold holdings at higher Gold Prices."

"Crucial will be the scrap flows to the market now that gold has moved above $900," says Walter de Wet for Standard Bank here in London.

"Gold scrap is not infinite," he notes of the Record Scrap Gold Flows of the first quarter, "and it could be that a much higher Gold Price would be needed to entice holders of gold to bring it to the market this time round."

On the US Gold Futures market, meantime, latest data show that the so-called "smart money" of commercial traders acting for bullion banks, refineries and wholesalers last week cut their bearish bets on the Gold Price to the lowest level since mid-Jan.

Hedge funds and other large investment players, in contrast, cut their bullish betting on the Gold Price to 83% of their speculative positions – the lowest level so far this year.

Long-run data from the CFTC show that the sharpest gains in Gold Prices over the last four years have tended to follow speculative bull ratios falling below 70%.

Today in the currency markets, "Data show that positions remain very light indeed," notes Steven Barrow, also at Standard Bank in London, "which seems to be indicative of the fact that most markets are not showing strong trends right now."

Further ahead, the Dollar's surge since last summer looks vulnerable, Barrow believes, should the US economy begin to rebound earlier than the rest of the world.

"In our view, the probability is that the Dollar won't be dictated by such fundamentals as growth or interest rates. Instead, it is likely to fall again [albeit] with only a modestly weaker bias this year."

Monday saw the US Dollar weaken to new one-month lows vs. the Japanese Yen, but strengthen against the Euro and British Pound.

Looking to reduce its exposure to US bonds and currency, Beijing last week said it's grown China's National Gold Reserves by 75% in the last five years, reaching fifth position in the world table of official gold hoarders.

"It put a bit of a rocket under the Gold Price," reckons Carey Smith at Alto Capital in Perth, Australia, speaking to ABC News.

"I mean, it's run from about $860 when they announced it, to about $917 at the moment. So gold's once again trying to go through that $1,000 mark."

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.

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