Gold Falls on Momentum Traders Selling Despite Asian Demand

By: GoldCore

Gold experienced a couple of sharp dips to below $1,075/oz in US trading but it recovered just as quickly and closed yesterday marginally lower. It has been more steady in Asian trading so far this morning, not moving outside a range of $1,079.50/oz to $1,086/oz. Gold is currently trading at $1,082.00/oz and in Euro and GBP terms, gold is trading at €776/oz and £671/oz respectively.

Gold in Euro terms has remained robust near €800/oz and has not fallen as much as in dollar terms due to concerns about the risk of a Eurozone countries bankruptcy and the impact on the Euro (see News below).

Gold appears to be attempting to consolidate at these levels after the recent sharp selloff. Gold is being supported by increased volatility due to growing concerns about the sustainability of the economic recovery and about sovereign debt risk. Gold is down nearly 14% from its highs in early December (in USD terms) but recent years have seen many selloffs in the 10% to 15% range and they are typical in bull markets which climb a ‘wall of worry’. Support is at $1,070/oz and strong support is at previous strong resistance at $1,030/oz.

Further falls in equity markets could see gold fall further as traders and momentum players (speculative hedge funds etc.) sell gold in anticipation of lower prices in the short term. But with strong physical demand in Asia and particularly China in the run up to Chinese New Year any selloff will be regarded as a buying opportunity for those with a longer term outlook. Asian demand remains robust as seen in premiums for gold bars in Vietnam and Singapore and Asian investors concerned about the dollar and the value of their own currencies are buying gold as an inflation hedge.

While news regarding central bank buying has been muted so far in 2010, it is likely that some central banks (particularly in Asia such as India and China) are eyeing the gold market and may soon decide that it is time to buy again. 2010 looks set to replicate 20099 with central banks becoming net buyers of gold again.

Bernanke’s re-nomination yesterday removes an element of uncertainty recently hanging over the market but he is still confronted with significant political and economic challenges made harder by the tough confirmation fight.

SILVER
Silver dipped sharply to $16.08/oz overnight but it bounced back up quickly. Silver is currently trading at $16.25/oz, €11.63/oz and £10.04/oz.

PGM’s
Platinum is trading at $1,511/oz and palladium is currently trading at $420/oz. While rhodium is at $2,450/oz.

News
- Equities in Asia were down (Nikkei -2%, Hang Seng -1.15%) and European markets have given up early gains most indices remain slightly higher
- Unemployment in the 16-nation euro zone reached 10% in December for the first time showing the slow economic recovery has yet to translate into job-making.
- The sovereign debt crisis in the Eurozone is deepening with conflicting messages regarding whether Greece will receive an emergency bailout. “It’s quite clear that economic policies are not just a matter of national concern but European concern,” said José Manuel Barroso, European Commission president. However, Germany economy minister Rainer Brüderle, said there would be "no bail-outs" for struggling debtors and no move to a "European economic government". "A few European nations are exhibiting dangerous weaknesses. That could have fatal consequences for all countries in the eurozone," he said. Despite the warning, he said each country must solve its own problems. In Davos, George Soros said that Germany was in no mood “to be the deep pocket for what they consider profligate, southern neighbours."
- Spain’s jobless rate has hit 18.8% (youth unemployment has reached 44pc) and there are growing concerns that Spain may go the way of Greece and this would pose an even greater challenge to the Eurozone and the Euro. Nouriel Roubini warned that Spain is too big to contain. "If Greece goes under that's a problem for the eurozone. If Spain goes under it's a disaster," he said.
- Dutch, British and Icelandic government ministers will meet on Friday to discuss the Icesave issue in an effort to resolve a dispute that threatens Iceland’s precarious finances and diplomatic relations. Iceland’s President Mr Grimsson described as a financial terrorist act against Iceland the UK s decision in 2008 to use anti-terrorism legislation to seize deposits in Britain owned by one of the Icelandic banks. 'For centuries Gordon Brown will be remembered in Iceland long after he is forgotten in Britain. '

Mark O'Byrne

WINNERS MoneyMate and Investor Magazine Financial Analysts 2006

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