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Catching a Falling Financial Knife

Gold Could Test Resistance After Consolidation

Commodities / Gold and Silver 2013 Feb 05, 2013 - 03:33 PM GMT

By: Ben_Traynor

Commodities

WHOLESALE MARKET gold bullion prices rose above $1680 an ounce Tuesday morning in London, trading close to last week's high, as stocks, commodities and the Euro also gained and US Treasuries fell, following better-than-expected services sector data from Europe.

Silver meantime touched $32 an ounce for the first time this week.

"We will remain short term bearish [on gold] while resistance [around $1696 per ounce] caps," says Axel Rudolph, senior technical analyst at Commerzbank.


"Should this resistance zone unexpectedly be overcome, however, our medium term bullish forecast will be reinstated with the 1750 region then being targeted."

"The January 4 low at $1625 is pivotal," add technical analysts at Scotia Mocatta,"and there should be good support there...the consolidation since that date may indicate gold is forming a base."

Sentiment towards gold among western households grew less bullish last month, according to data published by BullionVault Tuesday.

The Gold Investor Index, which tracks buying and selling on the world's largest physical gold market for private investors online, fell to 54.9 in January, down from a 12-month high of 58.3 a month earlier and its lowest reading since September. A figure above 50 indicates more net buyers than net sellers over the month.

Weekly data published by the Commodity Futures Trading Commission last Friday meantime show the speculative net long position of gold futures traders, a closely-watched measure of futures market sentiment, fell to levels not reported since August during the week ended last Tuesday, indicating reduced bullishness among traders.

Over in India, traditionally the world's biggest source of private gold demand, the government's "anti-gold" stance means Indian gold demand "is going to face a difficult year", according to Philip Klapwijk, global head of metal analytics at precious metals consultancy Thomson Reuters GFMS.

"Comparing demand last year with 2011, we see this rather strange phenomenon that India was the standout for the country where demand collapsed the most," Klapwijk told a conference in cape Town Monday.

"In other parts of the world, they shrugged off the 6% increase in gold prices rather well and in other parts we saw growth in jewelry demand."

Gold bullion imports to China through Hong Kong nearly doubled in 2012, hitting a record 834.5 tonnes, the island's Census & Statistics Department said today.

Now the world's largest gold consumer as well as the number one mining producing nation, however, China also trebled its exports of gold through Hong Kong, the data show.

Gold bullion imports net of exports rose 56.0% to 523.6 tonnes on BullionVault's maths.

China's central bank meantime injected a record 450 billion Yuan ($72 billion) into the country's money markets Tuesday ahead of next week's Lunar New Year holiday.

Bank of Japan governor Masaaki Shirakawa announced Tuesday that he will step down three weeks earlier than scheduled, and will now leave his post on March 19.

At its most recent policy meeting, the BOJ doubled its inflation target from 1% to 2% and announced it will launch open ended quantitative easing once the current round of QE ends next year.

The BOJ's move was largely expected, having been called for by prime minister Shinzo Abe following his election victory in December, and was described as "threatening an end to central bank autonomy" by the head of Germany's Bundesbank Jens Weidmann.

"[Shirakawa's] resignation will likely push forward the timing of bold monetary easing action [by the BOJ," reckons Akito Fukunaga, chief rates strategist at RBS Securities Japan in Tokyo.

"Shirakawa has probably judged that it's better for the BOJ to start with a new top three who have similar views."

In Europe, the services sectors of Germany, Spain and the Eurozone as a whole all saw better-than-expected improvements in conditions last month, according to monthly purchasing managers' index data published this morning, although the PMIs for Spain and the Eurozone remained below 50, indicating sector contraction.

Italy's services PMI by contrast was lower than the consensus forecast among analysts, and down on the month earlier, indicating a sharper rate of contraction during the month.

In the UK, January's services PMI was 51.5, up from 48.9 a month earlier.

"A huge sigh of relief accompanies these numbers, as a return to growth of the service sector in January greatly reduces the likelihood of the UK falling back into a 'triple-dip' recession," says Chris Williamson, chief economist at Markit, which produces the PMI.

Both the Euro and Sterling rallied against the Dollar this morning, although Sterling reversed most of the move by lunchtime. Both currencies remain below where they started the month.

By Ben Traynor
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

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 2013

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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Catching a Falling Financial Knife