Gold Sits Tight as US and UK Stocks Form "Death Cross"

From Adrian Ash

BullionVault

Greece Quietly Starts to Restructure Public Debts

• THE PRICE OF GOLD in wholesale markets held fast to $1210 an ounce in London on Monday, moving in a tighter range than even Asian and European stocks in what one dealer called “totally lackluster” trade.

• European government bonds ticked higher as both Sterling and the single Euro currency edged back, nudging 10-year German bund yields down to 2.55%.

• Crude oil crept back above $72 per barrel, but overall commodities held flat, with silver prices slipping 10¢ per ounce to $17.80.

• US markets stayed closed for the Independence Day holiday, leaving the S&P with last week’s 5% loss.

• “I don’t foresee gold dropping below $1200,” says Phillip Futures analyst Ong Yi Ling in Singapore, speaking to Bloomberg.

• “Of course, people are buying on dips.”

• Commerzbank’s Axel Rudolph, however, says last week’s sharp drop in gold prices “makes us question our previously bullish forecast” as the metal fell below its average price of the last 55 days.

• “The last line in the sand held at $1197,” notes bullion bank Scotia Mocatta of Thursday night’s six-week low.

• But “the sell-off in gold is a very bearish development, as we will now find sellers at $1215 with fresh liquidation selling being triggered on a break [below] $1197.”

• Over in the stock market, New York’s S&P index last week formed what several analysts spy as “a bearish death cross” – a technical pattern which London’s FTSE100 index of blue-chip shares formed in late June.

• Both the S&P and FTSE100 last formed a “death cross” – whereby the index’s moving average of the previous 50 days’ price drops below the 200-day moving average – in late 2007. They each went on to lose almost half their value over the next 15 months.

• “[Last week’s] $40 drop in gold was the biggest fall in five months,” notes MKS Finance, a division of the Swiss-based refinery group.

• As a result, it says, “We saw a peak of physical demand in regions that had been quiet for some time, such as the India.”

• The world’s largest single consumer market for gold, India typically sees gold demand slacken over the summer months, returning again after harvest as the autumn festival of Diwali approaches.

• “Gold should rebound from this drop because of economic concerns and European indebtedness,” reckons MKS’s note, “which will boost demand for the metal as a store of value.”

• Ahead of this week’s interest-rate decision by the European Central Bank, new data today showed Eurozone retail sales rising unexpectedly in value terms in May.

• The 16-member currency zone’s services sector expanded faster than forecast, and investor sentiment didn’t fall as sharply as feared on the Sentix survey.

• Faced with further doubts over Eurozone government debt, however, the ECB is likely to revive the “long-term refinancing operations” which expired on July 1st say analysts at Citibank in their weekly Euro report.

• ECB president Jean-Claude Trichet said on Sunday that the region’s new “austerity” fiscal budgets will not damage growth – a signal, according to some analysts, that monetary policy will leave interest rates at their current record low of 1.0%.

• “Greece has already started to restructure its state debts,” says John Dizard in today’s FTfm supplement, citing a little-noticed decision by the Greek Ministry of Health and Social Welfare to repay debts of €5.36 billion ($6.7bn) – owed to medical suppliers – with either zero-coupon bonds or a “haircut” of 19%.

• Back in the precious metals market, “In the short term we remain neutral,” says today’s commodity note from South Africa’s Standard Bank, “and foresee further liquidation.

• “However…with the metal at $1200, scrap selling has dried up, and the market is geared towards buying gold.

• “While another near-term correction is possible, we still target $1300 towards the fourth quarter of 2010.”

Adrian Ash

BullionVault

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Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

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