30
May
2012

Gold Capped $1,580 – Another Concentrated Burst Of Selling On High Volume

Gold’s London AM fix this morning was USD 1,548.75, EUR 1,244.98, and GBP 995.41 per ounce. Yesterday’s AM fix was USD 1,573.75, EUR 1,254.48, and GBP 1,003.67 per ounce.

Silver is trading at $27.75/oz, €22.39/oz and £17.87/oz. Platinum is trading at $1,416.25/oz, palladium at $597.75/oz and rhodium at $1,275/oz.

Gold fell 0.89% or $14.00 in active trading yesterday and closed at $1,558.80/oz. Gold fell marginally in Asia but remains in a tight range. In European trading gold is hovering near the $1,550/oz level.  

 
Determined selling at the $1,580/oz level capped gold yesterday prior to a bout of sharp selling. This saw gold quickly fall $20 from $1,575/oz to $1,555/oz on heavy volume. Tuesday’s COMEX gold futures volume was well over 450,000 lots – which is close to the record for 2012 and volume more than doubled its 30 day average. 

 Gold 5 Day Chart – (Bloomberg)

Counter intuitively, gold turned sharply lower due to another bout of concentrated selling despite a distinct lack of market moving news – indeed market news was quite gold bullish. There were mere rumours that Egan Jones had downgraded Spain. The downgrade rumour , which was subsequently confirmed, saw the euro fall only marginally – from 1.253 to 1.248 and little movement in equities.

Gold is weaker again today despite heightened risk aversion on fears that the euro crisis is escalating. Concerns about Italy have resurfaced after their 10 year bond yield rose above the important 6% level this morning.

Gold has recently tracked the euro as many investors opted for the dollar over safe haven gold bullion in the near term. This was graphically seen during the Lehman and AIG crisis when gold also fell in the short term prior to quickly basing and making a speedy recovery soon after.

We would expect a similar pattern to take place again and the counter intuitive short term gold price movement of late will likely soon give way to a reassertion of the gold’s primary secular bull market trend. 

Cross Currency Table – (Bloomberg)

Ongoing concerns about the euro, the downgrading of Spain and the risk of contagion is of course bullish for gold but gold can often be correlated with risk assets such as equities (and risk currencies such as the euro) in the short term.

Gold has risen from below €500 to over €1,200 in last 5 years so correlation with the euro is clearly short term.

Gold is inversely correlated with the dollar and all fiat currencies over the long term and best for investors and store of value buyers to fade out the short term noise of gold’s corrections and short term correlation with risk assets.

Greece’s elections on June 17th may be a short term positive for the euro if pro bailout parties win, however this is way too far away to call and the scale of the debt crisis in Europe suggests that national currencies may return or that the euro will be devalued or a combination thereof.

Some market watchers are waiting for central banks to give a clear signal as to whether they are going to inject trillions of more euros, pounds and dollars into struggling economies.

The near certain further debasement of currencies in the coming months will benefit gold.


Gold 1 Year Chart – (Bloomberg)

India’s recent gold purchasing power has been hurt by the country’s weak currency and it is expected that buying will remain slow until their rainy season ends in September. 

However demand from China and the rest of Asia remains robust.  "While Indian demand has been lower than normal, overall we continue to see decent buying interest from the rest of Asia," says Standard Bank, “especially South East Asia.”

Speculators and some investors are waiting on the sidelines for more clues regarding price direction but smart money such as George Soros, David Einhorn, Kyle Bass, Marc Faber, pension funds, institutions such as PIMCO and central banks continue to diversify into gold.

The smart money understands the diversification benefits of gold and knows that investments, pensions and protecting and preserving wealth is about owning quality assets and currencies over the long term. 

OTHER NEWS
(Reuters Global Gold Forum) — In a note this morning, Barclays Capital says that from a technical perspective, it is neutral on gold and silver in the medium term. "The lows near 1520 underpin our greater bullish view for gold," it said. "Near term we expect a range to unfold under 1620. We are also bullish for silver while above 26.00. Our initial upside targets for silver are in the 29.00 area."

(Reuters Global Gold Forum)
—  The world’s biggest silver-backed exchange-traded fund, New York’s iShares Silver Trust , reported a heftyish 45-tonne outflow yesterday, its biggest one-day outflow since May 9, when its holdings declined by more than 120 tonnes.

(Bloomberg) — Standard Chartered Says Platinum Prices Are ‘Oversold for Now’
Platinum is “oversold for now,” partly on concerns about output in South Africa, Standard Chartered Plc said in a report e-mailed today.

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NEWS
Gold hits one-week low on euro weakness – Reuters

Gold Slips In Asia As Euro-Zone Worries Weigh – Wall Street Journal

Italian, Spanish Bond Yields Surge – Wall Street Journal

Gold loses over $20 as dollar gains on Spain – MarketWatch

COMMENTARY
Europe’s Debtors Must Pawn Their Gold For Eurobond Redemption – The Telegraph

Germany Has A Generous Proposal To The Broke PIIGS: "Cash For Gold" – Zero Hedge

ECB Calls Spain’s Bluff… Or Does It? And Did Europe Just Check To The Fed? – Zero Hedge

Greyerz – $100 Trillion+ to be Printed, Expect Capital Controls – King World News

Newmont CEO – China Doing Everything It Can to Get Gold – King World News

Gold’s "Contrarian Moment" – GoldSeek

 

Stephen Flood
Chief Executive Officer

I am the CEO of GoldCore. We help investors buy and store gold and silver easily and cost effectively. We work with clients of every variety from wealth family offices to everyday people. We provide the very best market data and client service and we care deeply for our clients interests.