Gold Climbs Back Above $1400, Investors Could Sell into Strength

By: Ben_Traynor

WHOLESALE gold prices rallied above $1400 an ounce Friday morning, with analysts continuing to point to strong demand for physical bullion following gold's sharpest weekly price fall in over four years.

"Expect the market to sell into strength," warns bullion bank Scotia Mocatta, whose technical analysts see support for gold at $1309 an ounce, the February 2011 low.

Gold in Sterling meantime climbed to around £920 an ounce, erasing around half of its losses from Monday, as did gold in Euros which ended Friday morning in London around €1080.

Based on London Fix prices, gold in Dollars looked set for weekly drop of 8.4% by lunchtime in London, the biggest weekly drop since October 2008.

"We believe that despite the current turbulence, the long-term fundamentals of the gold market remain intact," says Marcus Grubb, managing director, investment, at the World Gold Council.

"Physical gold demand in India, China and Dubai is incredible because of the price fall."

In India, traditionally the world's biggest source of gold demand, imports could rise to more than 180 tonnes over the course of the second quarter, a 20% jump on Q1, Bombay Bullion Association president Mohit Kamboj said Thursday.

"There is very good demand and the footfall [at stores selling gold] has increased multi-fold following weakness in gold price," he said.

Earlier in the week dealers in Hong Kong and elsewhere reported premiums opening up on physical gold as a result of increased demand and supply backlogs, while demand for physical gold among investors using the internet has also surged.

Japan's biggest online broker Dot Commodity saw trading volumes for gold jump fourfold on Tuesday compared to a day earlier, it reported in a press release, while traffic to BullionVault, the world's biggest physical gold market online, was its highest since September 2011, when gold set its all-time record high.

Looking ahead to next week, of 34 gold analysts surveyed by Bloomberg, 15 said they expected gold to go up next week, 14 said they see it going down and five declared themselves neutral, the news agency reports today.

Silver meantime climbed as high as $23.90 an ounce this morning, before easing back, while other commodities also ticked higher after sharp falls earlier in the week that saw oil extend its losses for April.

On a weekly basis, silver recorded a weekly loss of 13.6% at Friday lunchtime'sLondon Fix.

"Commodities have been sending [a negative] signal on growth for a while," says Mohamed El-Erian, co-chief investment officer of Pimco, which manages $2trillion of assets, "and now [it is] even louder."

"Gold and silver, the front-runners since 2009, are likely over the next few years to be among the weakest of all the commodities," says a note from Barclays, which has cut its average per ounce gold price forecasts to $1483 for 2013 and $1450 for 2014, down from $1647 and $1600 respectively.

"We see the outlook in the near term as fragile...gold will need to find support from the physical market in the near term, but investor interest continuing to unravel poses the largest downside risk for prices."

Though they remained down on the week, European stock markets ticked higher this morning following gains in Asia, despite losses on US markets yesterday.

"In the short term, US stocks will unlikely see a major correction given solid economic growth and attractive valuations," says a note from Citi.

"Challenges in the second half may include sluggish growth in Europe, bond buying slowdown by the Federal Reserve and budget negotiations in the US."

By Ben Traynor
BullionVault.com

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.(c) BullionVault 2013

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