Gold News

Gold Still Stuck at $950, Break-Out "Could Hit $1,325" But Industrial & Jewelry Demand "Tame"

The Gold Price fell as London returned from the Bank Holiday weekend on Tuesday, dropping all of its 1% overnight bounce in Asia to record an AM Gold Fix at $949.75 an ounce.

European stock markets also fell, losing 1.2% in London and 1.5% in Frankfurt.

Crude oil dropped below $70 per barrel. Government bond prices rose.

"Gold has not moved from the $950 mark for the past seven weeks," notes the daily comment from London market makers Scotia Mocatta. "The longer we consolidate sideways the bigger the directional move we will see when it does break."

Scotia Mocatta's technical analysts are watching $934 and $964 as the outside edges of gold's "shrinking triangular" pattern.

"A close on either side of those parameters should yield $865 or $1032," they say, pointing to the previous Dollar-price high, hit when Bear Stearns collapsed in March 2008.

For UK investors looking to Buy Gold, "The trend over the past several years has been to advance, then consolidate; then advance; then consolidate again; then advance once more," writes Dennis Gartman, author for the past 27 years of the $5,000 Gartman Letter.

"After the recent consolidation that has taken several months to develop, it appears that gold is heading higher once again and a close above £590 would be most impressive."

Early Tuesday, the Gold Price in British Pounds held at £585 an ounce after briefly touching £590 in late Asian trade yesterday.

Sterling meantime dropped 1.5¢ to the Dollar on news that new UK consumer lending turned negative in July, shrinking the outstanding total for the first time since records began in 1993.

The broad money supply, in contrast, grew by 14.5% from a year earlier as financial companies hoarded cash and credit.

"We remain bearish on the Dollar," says Steven Barrow, chief currency strategist at Standard Bank in his new Currency Monthly, "while our concerns over the Pound have been raised by the Bank of England's decision to press on with more Quantitative Easing.

"The Euro and the Yen come somewhere in the middle of our currency league chart, while the top is populated by commodity currencies like the Aussie, Kiwi, Canadian Dollar and Norwegian Krone."

Today the US Dollar bounced against the Euro and also rose vs. the Yen. The major commodity currencies fell alongside crude oil and base metal prices.

In gold, Barrow's colleague Darran Grabham believes that a move above $980.85 an ounce would signal a short-term bull market, while a break of February's peak at $1,006 would then "confirm the completion of a continuation head-and-shoulders pattern.

"The eventual target is $1,325 an ounce."

On the downside however, a drop below the "support trendline" – a line starting at July's low of $906 and now sitting at $935 an ounce – could see gold "encounter support around the $906.50 level," says Grabham, Standard Bank's technical analyst, "before a break lower yields a move to a secondary objective of $890."

Looking at Gold Investment demand, and "after nine weeks of selling," writes Wolfgang Wrzesniok-Rossbach in his Precious Metals Weekly for German refining group Heraeus, "[late August] saw a slight change in trend in the ETFs, as investors increased their engagement.

"However the open positions on the futures exchanges have dropped four times as much as the Gold ETFs have added. As such the international investors as a whole were not really very supportive of the yellow metal. Additionally physical usage by industry continues to suffer as well."

Noting only "modest demand" from India ahead of the traditionally strong post-harvest festival season, Edel Tully at Mitsui writes that "Above $975, scrap flows are likely to accelerate. A move towards $900 would ignite fresh buying interest once again and, as such, help to provide a price floor to this market."

Mitsui's latest Refining Monitor also reports that sentiment amongst precious-metal refiners towards coin production fell last month to its lowest level since June 2005. "So long as safe haven demand wanes," says Dr.Tully, "we estimate the tame demand rate will persist."

Near-term, speculative dealing in Gold Futures and options maintained a strong influence over the metal's price last week, according to data from US regulator the CFTC.

Rising back above 500,000 open contracts and more than 8% above the average size since 2004, the volume of US futures and options bets between start-June and end-August showed an average correlation with weekly changes in the US-Dollar Gold Price of +0.84.

It would stand at +1.0 if they moved together by exactly the same proportions week to week. This summer, the connection between Gold Prices and the volume of Gold Futures was more than twice its 5-year average – itself a statistically significant correlation of +0.41.

Ready to Buy  Gold but unsure how best to do it? Read on for the facts about Investing in Gold...

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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