Gold Drop Done Enough, Traders Are Too Short

By: Adrian_Ash

GOLD ROSE more than 1.4% from an overnight low at $1242 per ounce in London on Wednesday morning as world stock markets sank and the US Dollar rose.

Commodity prices ticked higher with major government bonds. Silver rallied 2.8% to rise again above last week's finish at $19.69 before dropping with gold.

New private-sector data meantime showed 188,000 jobs being added in the US last month.

Friday's official Non-Farm Payrolls report is expected to show unemployment at 7.5%, a full percentage point above the Federal Reserve's stated target for reconsidering its loose monetary stance.

"We've changed our view on gold slightly," says Macquarie Secutiries analyst Matt Turner in a CNBC interview, and now forecasting a rise to $1370 by end-2013.

"Markets have been getting ahead of themselves on the end of QE," says Turner. "Gold in particular factored in a lot of this, but our economists don't think it will happen until later in 2014 and 2015."

More urgently, says Turner, investment positioning in Comex gold futures is now "too short – the smallest net long position since 2002."

Outflows from exchange-traded gold investment trusts have meantime totaled 600 tonnes already this year, equal says Turner to mining production from Africa and Latin America combined.

Gold ETF holdings fell a further 1.4 tonnes Tuesday to 2042.5 tonnes, according to Bloomberg data, "the lowest since May 2010."

"Gold has fallen because 3 things are up," said Morgan Stanley's chief investment strategist David Darst in a separate interview Tuesday – "interest rates, stock markets, and the US Dollar."

The Dollar today spiked to a near-5 week high against the Euro currency, helping the gold price in Euros reach a 1-week high above €971 per ounce – more than 7% above last week's 34-month low.

Dollar-gold around $1200 per ounce offers a "good entry point", reckons private-bank Coutts' Gary Dugan, chief investment officer for Asia and the Middle East.

"At this point [however] it is too early to tell whether we have formed a bottom," says the latest chart analysis from bullion market-maker Scotia Mocatta.

"Given the bearishness of the overall technicals, the risk remains for another test to the downside."

Sixteen pro-government protesters were meantime reported killed overnight in Cairo, where the Egyptian army's deadline for elected-president Mohammed Morse to open talks with demonstrators is set to expire at 14:30 GMT.

Cairo yesterday sold only half a planned auction of new 5-year debt to investors, and at a sharply higher interest of 15.8% per annum.

Portuguese bond yields led weaker Eurozone rates higher on Wednesday, breaking 8-month highs above 8% after a minority member of the coalition government stepped down in protest at continued budget cuts.

"It sounds the alarm bell of austerity fatigue," reckons Commerzbank strategist David Schnautz in New York.

Officials from Eurozone lenders and the IMF yesterday gave the Greek government 3 days to confirm its budget cuts, or risk losing €2.2 billion needed to repay bonds maturing next month.

Athens stock market fell to new 2013 lows, down 1.9% on the day. Lisbon's main stock index lost 5.5% to its lowest level since November.

"After a year and a half of relentless gold selling, earlier this week I turned bullish for the first time in a long while," said trader and publisher Dennis Gartman on CNBC last night.

Saying only last week that gold could fall to perhaps $900 per ounce, "I'm bullish of gold but I'm not a true believer," Gartman now explains. "I think that the worst is over."

Gold futures in China – forecast to become the world's No.1 consumer market thanks to India's import restrictions – today held steady, with Shanghai premiums holding around $30 per ounce above international benchmark prices.

Premiums in Hong Kong and also Singapore, where Swiss bank UBS has now followed Deutsche Bank in offering Singapore gold storage to clients, also held steady and "elevated", according to Reuters.

"Asian buyers believe that gold has probably done enough on the downside for now," the newswire quotes broker Marex Spectron.

By Adrian Ash
BullionVault.com

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Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2013

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