Gold Falls Back "On Profit Taking"

By: Ben_Traynor

SPOT MARKET prices quoted for gold bullion traded just below $1760 an ounce Tuesday morning in London, 1% off the high hit last week after the US Federal Reserve announced its new open-ended asset purchase program.

"Immediate bullish upside momentum will be maintained while the gold price trades above Thursday's low at $1723.69," reckons Axel Rudolph, senior technical analyst at Commerzbank.

"Support above this level can be seen...at $1749.51 and below it at the psychological $1700 level."

Silver bullion traded in a tight range below $34.20 an ounce this morning – 2.1% off Friday's six-month high.

Stock markets meantime edged lower, while US Treasury bonds gained. Industrial commodities were little changed, following Monday's sudden drop in oil prices following reports that the US was considering approving a release from the strategic petroleum reserve.

A day earlier, gold bullion prices fell around $15 an ounce during Monday's US trading, falling again after a short-lived rebound in Tuesday's Asian session.

"I would simply call it profit taking," says Dominic Schnider at UBS Wealth Management in Singapore.

"I think it's within the range of a solid performance that we've seen over the last two weeks or even a month...nothing unusual."

"I think $1730, levels where the market was before the Fed, will serve as a firm support," adds Yuichi Ikemizu at Standard Bank in Tokyo.

"[Gold could test] last year's peak above $1900 before the end of the year."

Holdings of gold bullion to back the world's biggest gold ETFSPDR Gold Shares meantime held steady at 1301.5 tonnes yesterday, the thirteen-month high hit last Friday.

Over in India – traditionally the world's biggest buyer of gold bullion – "demand was higher than yesterday," one Mumbai gold dealer told newswire Reuters Tuesday.

"Jewelers were making purchases for the festival season...still, large-scale buying is not happening. Ahead of festivals jewelers usually ramp up purchases, but this year so far, the season is subdued."

On the bond markets, the difference between yields on 10-Year US Treasury bonds and inflation-protected TIPS of equivalent maturity – known as the breakeven rate – rose to its highest level since 2006 yesterday, the Financial Times reports.

"Break-even inflation rates do appear to be moving upwards in a structural way, after the potential regime change at the Fed," says Barclays strategist Michael Pond.

"The Fed is more focused on reducing unemployment and is prepared to tolerate higher inflation."

Republican presidential candidate Mitt Romney has said that his comments that 47% of Americans "believe that they are victims" – secretly recorded earlier this year and published Monday – were "not elegantly stated".

Romney stood by the remarks yesterday, adding that they highlighted the difference between his "free people, free enterprise, free market" philosophy and the "government-centered society" outlook of President Obama.

Here in the UK, consumer price inflation fell to 2.5% last month – down from 2.6% a month earlier – according to official figures published Tuesday.

"This means that the Bank of England will have room to implement more quantitative easing," reckons ING economist James Knightley.

To date, the Bank of England has announced £375 billion of QE since it first launched its asset purchase program in March 2009.

In South Africa, workers at Lonmin's Marikana platinum mine, who have been on strike for six weeks, have reduced their basic wage demand, although it remains considerably above Lonmin's offer, Reuters reports.

"The situation in South Africa is clearing," reckons Moudi Raad at Swiss refiners MKS, adding that strikes at a number of platinum mines have either ended or are expected to do so this week.

Yields on bonds issued by gold mining firm Gold Fields have risen to a two-month high after 15000 began striking at its KDC West site at the start of last week.

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 2012

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