By From Adrian Ash
“Weak Long Liquidation” & “Technical Sell-Off”
THE PRICE OF GOLD held near 3-month lows against all the world’s major currencies on Wednesday in London, recovering little of yesterday’s 2.2% drop.
- Soft commodities and base metals rallied from their sell-off, but silver prices held at a 3-session low almost 4% beneath Tuesday’s start, while an early gain faded in European stock markets.
- The Euro currency flipped either side of $1.30 to the Dollar. Gold priced in Euros held near €28,800 per kilo – some 15% off its record top of last month.
- “Gold was driven down through its long-term bullish trendline as liquidation swept the commodities markets,” says Mitsui’s London dealing desk in its precious-metals note today.
- “Physical demand should support here, but with the third quarter largely absent of major gold buying holidays and festivals in physical centres [such as India], the risk remains to the downside.”
- In the gold investment market, “Those with weak hands have been, to a large extent, swept away from the market,” counters Société Générale. Analyzing last week’s Commitment of Traders data, the French bank’s analysts note that “at just below 30.5%, the speculative proportion of total open interest [in US gold futures contracts] is at its lowest since the end of 2007.
- “This opens the possibility of renewed interest in coming weeks. It also, though, means that the potential for swift short-covering rallies [which would squeeze prices higher] has been reduced.”
- Short term, HSBC’s gold analysts say in a note, “With many traders on holiday, and the rollover from the August gold futures to the December futures in full swing, there is…a strong technical element to the recent slide in prices.
- “This also has increased the influence of momentum and other technically generated trading,” the bank is quoted by Reuters, “which has tended to favor the downside as the market has weakened. In the near term, this may continue.”
- Back in the currency market on Wednesday, the British Pound rose to $1.56 – its best level since mid-Feb. – despite Bank of England governor Mervyn King vowing to keep UK interest rates at historic, near-zero lows for “some considerable distance” into the future.
- “Bank balance sheets are still recovering from the current crisis,” he told a parliamentary committee. “The debate is about the appropriate degree of stimulus, not about applying brakes.”
- The gold price in Sterling held below £750 an ounce – a level first breached on the way up in February.
- “A government whose animating spirit was Lloyd George rather than George Osborne would ask the public to subscribe to a National Recovery Loan of £100bn, to be spent over five years,” writes John Maynard Keynes biographer and Warwick University professor Robert, Lord Skidelsky in the Financial Times today.
- “Austerity in the capital budget is the worst possible remedy for a slump,” he says, citing two “big ticket” spending projects announced by London’s previous Labour administration, but now halted by the Tory-LibDem coalition.
- The International Monetary Fund meantime warned that China’s property market may be overheating, but signally removed the word “substantially” from its description of the Chinese Yuan as “undervalued” – a move widely seen as political, rather than analytic.
- Tuesday saw the Moody’s ratings agency cut its outlook on the Treasury-supported debt of banking giants Wells Fargo, Citibank and Bank of America – plus 10 regional US banks – down to “negative”, citing the Dodd-Frank Wall Street Reform Act.
- “The intent of Dodd-Frank is clearly to eliminate government – i.e. taxpayer – support to creditors,” says Sean Jones, head of Moody’s North American bank ratings team.
Adrian Ash
Gold price chart, no delay | Buy gold online at live prices
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.
(c) BullionVault 2010
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Comments