Gold News

Spot Gold Drops 1.2% from "2012 Trendline Resistance", Seen Safe from Drop to $1000 on Surging Chinese Demand

SPOT GOLD prices bounced almost $16 below a new 4-month high Wednesday lunchtime in London, finally rallying after slipping all morning from $1346 per ounce.
 
Silver also fell as  gold prices lost 1.2%, but had earlier failed to track the overnight rise and so dropped to 3-session lows beneath last week's finish at $21.80 per ounce.
 
Western stock markets slipped, as did the price of major government bonds.
 
Ten-year US Treasury yields edged higher to 2.71%.
 
Gold prices on the Shanghai Gold Exchange reversed Tuesday's discount to London spot, taking the premium to $1.80 per ounce on strong but lower trading volumes.
 
"Gold is now approaching the confluence of trend line resistance at $1347 developing from October 2012 highs and May 2013 highs," says a technical chart analysis from French investment bank and London market makers Societe Generale.
 
"Bullish momentum has been stalling lately," says SocGen. Only a definite close above $1347 would propel gold towards $1362 and $1375," its highs from last October and September.
 
Today's "pause" at 4-month highs, says a note from Swiss investment and bullion bank UBS, shows "the need for stronger conviction" amongst investors.
 
With spot gold prices now 12% higher from the start of 2014, "It is also sensible for physical buyers to take a break," UBS goes on, noting that Shanghai's premium to London prices "has come off significantly" and the falling Yuan could mean "potential liquidity issues make it attractive to sell gold for cash in the near-term."
 
The Chinese Yuan steadied above yesterday's 6-month lows to the Dollar on Wednesday, with the recent drop now widely atttributed to firm action against "currency speculators" by the People's Bank of China.
 
"The market hasn't quite fathomed the scale of annual Chinese buying," reckons the global head of FX and precious metals at the private-bank division of France's Credit Agricole, pointing to the "wealth effect in China over the next coming years."
 
Although not bullish right now – and preferring a drop in spot gold prices to $1250 to buy – "I don’t think gold's going to come back to $1000, like many people are suggesting," says Credit Agricole's Davis Hall, quoted from a TV interview by Bloomberg.
 
"Because I'm seeing," he says, "what's happening [to incomes and wealth] in China," now the world's No.1 end-consumer market for gold, overtaking India.

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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