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Gold Rallies Important Trendline Support, Silver and Copper Jump with Stocks

Commodities / Gold and Silver 2010 Jul 21, 2010 - 08:13 AM GMT

By: Adrian_Ash

Commodities

THE PRICE OF wholesale gold bullion bars jumped late-morning in London on Wednesday, reversing the week's 1.5% drop to new two-month lows, as the Euro and Japanese Yen both slipped against the Dollar.

Federal Reserve chairman Ben Bernanke was scheduled to speak before US lawmakers, with traders likely to watch closely for intimations of further quantitative easing ahead.


World stock markets meantime rose sharply, but government bonds were little changed, leaving 10-year yields at 2.94% and 2.65% respectively on US and German debt.

Crude oil crept above $78 per barrel, while copper futures and silver bullion traded in London both jumped 2.5% from yesterday's low.

"More of the same on Tuesday with a continued pullback," says Phil Smith's Reuters Technical of the gold market.
 
"Liquidation of long positions is weighing on the gold price," agrees Anne-Laure Tremblay at BNP Paribas, "taking gold to closely-watched technical levels."

The $1175 level now represents "a 21-month bullish trend line on the weekly chart" says Scotia Mocatta's latest note. Other analysts peg that "all important" support at $1170 per ounce.

"Buying interest does not have ample staying power" amid the current "seasonal lull" in physical bullion dealing, says UBS strategist Edel Tully in London.

"Once satisfied, it tends to peter off until the next occasion gold tumbles."

Gold Dealing volumes in London's wholesale market fell by one-sixth last month, ne data showed this morning, easing back by 14% from May's all-time record in Dollar terms.

Across the "loco London" market as a whole, however, it likely hit some $75 billion (in both unallocated and allocated gold) per day, with trade body the London Bullion Market Association noting of its members' figures that June's daily dealing still rose by nearly a third from 12 months earlier.

Prior to May's Greek debt crisis, the previous peaks in London's gold trading volumes came in Feb. '09 (a 12-year low in the US stock market), Sept. '08 (the collapse of Lehman Bros.) and March '08 (the collapse of Bear Stearns).

"This tragedy (or pantomime) has many more acts to come," says Alan Brown, chief investment officer across the group at London stock brokers Schroders in a new report.

"Watching events unfold in Euroland is like watching a slow motion train wreck...There is a ghastly inevitability [which] comes quite simply from the maths and German insistence on austerity everywhere, coupled with its unwillingness to contemplate stimulating its own economy."

Ahead of Friday's "stress results" for 92 Eurozone institutions, senior central banker Ewald Nowotny yesterday defending the likely results, calling them "strict and serious.

"What we have now is an organized stress test," said Nowotny, a member of the European Central Bank, "and then we have the government reaction to the results. Then at the ECB we will have to look how markets are developing and then we will have to act accordingly."

Eurozone investors looking to buy gold saw the price bounce almost 3% overnight from Tuesday's new 10-week low, briefly touching €30,000 per kilo.

"Gold must be viewed in terms of the European debt crisis and fears of inflation thanks to central bank intervention," says the Financial Times Deutschland today.

"[But] Even if gold is correctly seen as a valid 'safe haven', investors should differentiate between different vehicles. Increasingly, they want to choose only the safest."

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
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 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.


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