Gold News

Gold Price at 3-Month Lows as "Liquidation", "Weak Longs" & "Technical Trading" Blamed for 2.2% Plunge

Gold Prices held near 3-month lows against all major currencies on Wednesday morning in London, bouncing little from yesterday's 2.2% drop.

Soft commodities and base metals rallied from their sell-off, but Silver Prices held at a 3-session low almost 4% beneath Tuesday's start.

An early gain faded in European stock markets, and the Euro currency flipped either side of $1.30.

The Gold Price in Euros held near €28,800 per kilo – some 15% off its record top of last month.

"Gold was driven down through its long-term bullish trendline as liquidation swept the commodities markets," says Mitsui's London dealing desk in its precious-metals note today.

"Physical demand should support here, but with the third quarter largely absent of major gold buying holidays and festivals in physical centres [such as India], the risk remains to the downside."

In the Gold Investment market, "Those with weak hands have been, to a large extent, swept away from the market," counters Société Générale. Analyzing last week's Commitment of Traders data, the French bank's analysts note that "at just below 30.5%, the speculative proportion of total open interest [in US Gold Futures contracts] is at its lowest since the end of 2007.

"This opens the possibility of renewed interest in coming weeks. It also, though, means that the potential for swift short-covering rallies [which would squeeze prices higher] has been reduced."

Short term, HSBC's gold analysts say in a note, "With many traders on holiday, and the rollover from the August Gold Futures to the December futures in full swing, there is...a strong technical element to the recent slide in prices.

"This also has increased the influence of momentum and other technically generated trading," the bank is quoted by Reuters, "which has tended to favor the downside as the market has weakened. In the near term, this may continue."

Back in the currency market on Wednesday, the British Pound rose to $1.56 – its best level since mid-Feb. – despite Bank of England governor Mervyn King vowing to keep UK interest rates at historic, near-zero lows for "some considerable distance" into the future.

"Bank balance sheets are still recovering from the current crisis," he told a parliamentary committee. "The debate is about the appropriate degree of stimulus, not about applying brakes."

The Gold Price in Sterling held below £750 an ounce – a level first breached on the way up in February.

"A government whose animating spirit was Lloyd George rather than George Osborne would ask the public to subscribe to a National Recovery Loan of £100bn, to be spent over five years," writes John Maynard Keynes biographer and Warwick University professor Robert, Lord Skidelsky in the Financial Times today.

"Austerity in the capital budget is the worst possible remedy for a slump," he says, citing two "big ticket" spending projects announced by London's previous Labour administration, but now halted by the Tory-LibDem coalition.

The International Monetary Fund meantime warned that China's property market may be overheating, but signally removed the word "substantially" from its description of the Chinese Yuan as "undervalued" – a move widely seen as political, rather than analytic.

Tuesday saw the Moody's ratings agency cut its outlook on the Treasury-supported debt of banking giants Wells Fargo, Citibank and Bank of America – plus 10 regional US banks – down to "negative", citing the Dodd-Frank Wall Street Reform Act.

"The intent of Dodd-Frank is clearly to eliminate government – i.e. taxpayer – support to creditors," says Sean Jones, head of Moody's North American bank ratings team.

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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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