London Gold Market Report
from Adrian Ash
BullionVault
Wednesday, 24 July 08:25 EST
The PRICE OF GOLD fell $10 per ounce from a new 5-week high in London on Wednesday morning, but stood higher for the 13th session running amid what one trading desk called “a stop-loss fiesta”.
“There [is] still a lot of short positioning to unwind,” says a note from finance and refining group MKS in Geneva, “with very little seen in terms of any pullbacks.”
Stop-losses are orders set in advance to close a position if prices hit a certain level.
The number of bearish bets against gold held by speculative traders in US futures contracts last week dropped 10% according to latest data from US regulator the CFTC.
Trading volume in gold futures has fallen this month from the two-year records of April-June.
Options on gold futures, in contrast, have seen what exchange operator the CME Group yesterday called “huge” volume in August contracts over the last week, nearly one-third higher from year-ago levels.
All told, open interest in gold options has jumped to record levels. The August options contract expires Friday.
“While the breakout in gold is bullish,” says the latest technical analysis from London market-maker Scotia Mocatta, “given the bearishness of the trend that has been in full force since 2012, we would prefer to see a weekly close higher.
“However, short-term signals are encouraging.”
Asian and European stock markets meantime edged higher, while commodities were flat.
Silver prices meantime edged back with gold, cutting their gains for the week-to-date to 3.4%.
Gold investment prices stood 3.0% higher in Dollar terms by Wednesday lunchtime in London.
Projecting a 1-3 month target of $1150 per ounce, “Gold breached the upper part of the previous range at 1303 and reached the one-month channel upper limit at 1341/43,” says technical analysis from Societe Generale.
“A consolidation remains overdue.”
The US Dollar meantime fell to a 1-month low vs. the Euro after stronger-than-expected PMI data showed Eurozone manufacturing activity expanding last month for the first time since January 2012.
That pulled gold investment prices for Euro buyers back down to €1013 per ounce.
UK investors meantime saw gold near £877 per ounce, just above the level where June’s crash began in Sterling terms.
“A hold above the 50-day moving average of $1331 an ounce…may have provided some support for bullion prices,” says London bullion market-maker HSBC’s analyst James Steel.
“We suspect,” agrees broker INTL FCStone’s analyst Edward Meir, “that gold will likely find an element of support over the next several weeks, at least until investors start to focus on the key Federal Reserve meeting slated for September.”
The US central bank announces summer policy next Wednesday, but bond investment analysts expect no change until September – when the majority now forecast a cut from $85 billion to $65bn in the Federal Reserve’s monthly quantitative easing purchases of Treasury and mortgage bonds using newly-created money.
US Treasury bonds slipped overnight, nudging 10-year interest rates up to 2.56% – a 1-week high more than two-fifths above the start of 2013.
Gold investment positions in exchange-traded trust funds fell again yesterday, taking global holdings in gold ETFs to new 3-year lows.
Meantime in India – the world’s No.1 gold consumer – the Reserve Bank’s announcement forcing gold importers to re-export 20% of any shipments is “the most dangerous circular [for the jewelry business] we have witnessed in the last 20 years,” says Bachhraj Bamalwa, director of the All India Gems & Jewellery Trade Federation, speaking to Reuters.
India began relaxing tight gold import restrictions in the early 1990s, making legal what was already the world’s heaviest flows of physical gold.
“It’s going to be chaos,” agrees a Bangalore jewelry producer, pointing to the post-summer surge in Indian gold demand due when the festival and wedding season recommences.
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Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.
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