NEW YORK (TheStreet ) — Gold prices settled at $1,600 an ounce Tuesday as fresh new year buying buoyed the precious metal after it bounced off of key technical levels.
Gold for February delivery closed $33.70 higher at $1,600.50 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,608.70 and as low as $1,566.80 an ounce while the spot price was up $34, according to Kitco’s gold index.
Silver prices added $1.65 to close at $29.57 an ounce while the U.S. dollar index was down 0.8% at $79.56.
“It’s all about the euro,” says Anthony Neglia, president of Tower Trading, who says that higher gold prices have more to prove despite the fact that they bounced off $1,523 an ounce — a key technical level. “Gold can’t sustain [the rally] for just a day,” warns Neglia, who is selling rallies and needs to see gold close over $1,625 an ounce to get more optimistic.
A weaker U.S. dollar and stronger euro were helping support higher gold prices as well as gold’s 10% 2011 finish. A 10% gain might serve to attract investors looking for top performing assets as the SP ended the year flat, but those remembering gold’s volatility — that gold closed down 18% from its intra-day high of $1,923 — might be reluctant to bet big.
The latest commitment of traders report for the week ended December 27th, shows this conflict. Total long positions fell by 5,200 contracts while total short positions also fell by almost 3,000 contracts. “The latest data shows net fund longs are at the lowest since April 2009 in gold,” says James Moore, research analyst at FastMarkets.com, “suggesting plenty of upside price potential once sentiment improves.”
Part of today’s rally could also have been led by short covering says George Gero, senior vice president at RBC Capital Markets. “Look for closes above $1,615 to add new buyers from funds that may have missed last week’s buying opportunity.” Gero warns, however, that gold could be vulnerable to profit taking if prices can’t maintain the rally.
Stan Dash, vice president of applied technical analysis at TradeStation, agrees. “There may be enough demand, if the dollar has topped for now, to absorb a lot of that, but large holders will be liquidating into this rally.” Dash says if gold prices can break above $1,624, the 200-day moving average, and above $1,633 an ounce, a short term average, then he will have more conviction in the rally.
“This bounce is impressive,” says Dash, but “we are following what is going on in Europe.” Dash doesn’t think that gold is acting as a safe haven as political tensions heat up between Iran and the U.S. because the metal and stocks are moving higher together. If gold was a safe haven the two would be moving inversely to each other. “[I would] caution those looking to gold as protection against weak stocks.”
The latest minutes from the Federal Reserve‘s last meeting was a non event for gold, but might help to sustain a longer rally. The Fed indicated it might keep rates low past its initial target of 2013. Policymakers will also give their individual forecast on the fed funds rate as well as their economic predictions, which might make the Fed’s policy more transparent. The Fed will also lay out expectations of its balance sheet which means more direct hints of quantitative easing or tightening.
If rates are kept low for longer than expected or the Fed explicitly hints at pumping more money in the system, gold could rally. If inflation rises faster than interest rates, the dollar in the bank is worth less and gold becomes an attractive hard asset to counter paper money devaluation. The Fed’s next meeting is the last week in January.
Gold is also ignoring disappointing import news from India. The Bombay Bullion Association said that the country imported 125 tons of gold in the fourth quarter of 2011, down 55% from expectations, despite seasonally strong factors like Diwali, the festival of lights, where consumers buy a lot of gold. India imported 878 tons of gold in 2011, which was down more than 8% year-on-year. To make matters worse, in the first quarter India might import 143 tons, just half of what it did in 2011.
“For the time being the gold price will not find any support from this side,” says Commerzbank as demand has been battered as gold became too expensive to buy in rupee terms and as interest rates remained high. These low demand figures put a lot of pressure on China to make up demand.
“I do see [the slowdown in India] as an aberration …but China is continuing to gain on India in terms of consumption of gold,” says Marcus Grubb, managing director at the World Gold Council, who was referring to the slowdown in India from the third quarter.
China represented 28% of global jewelry buying in the third quarter and for only the fourth quarter since 2003 outpaced Indian demand. Grubb says China benefitted as it let its currency be revalued upwards against the dollar versus India which had to contend with a falling rupee- thereby making it more expensive to buy gold.
“We think imports into China could be 400 tons this year,” says Grubb which means China might be on track to consume 747 tons of gold in 2011. India’s gold market was deregulated 20 years ago compared to just 10 years for China, which means “China’s rate of consumption is catching up to India’s rate,” says Grubb and it needs to continue as Indian demand slows.
Gold mining stocks were soaring Tuesday. Kinross Gold(KGC) was rallying 5.53% at $12.03 while Yamana Gold(AUY) was jumping almost 4% at $15.27.
Other gold stocks, Agnico-Eagle(AEM) and Eldorado Gold(EGO) were trading higher at $37.81 and $14.54, respectively.
–Written by Alix Steel in New York.
To contact the writer of this article, click here: Alix Steel.
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Rabu, 04 Januari 2012
2012 Gold Outlook
Looking Back
Given gold’s recent lethargy, it’s easy to forget just how well it has performed over the last twelve months. At the time of this writing (early December 2011), gold is up around 22% on the year. Compare this to the major global stock indices: The U.S. Dow Jones Industrial Average is up around 4%; the UK FTSE100 is down 7%, the German DAX has fallen 14% while the Japanese Nikkei 225 is down 15% and the Shanghai Composite is heading for an 18% loss. Even when looking at other metals, gold has outperformed. Silver is about 3% higher while COMEX copper has fallen around 20% over the last twelve months.
However, 2011 was not all fun and games for gold bulls. Gold began the year struggling to break above $1,400 and fell steadily over January to retest support just above $1,300. Then gold embarked on a strong rally which eventually took it to a fresh all-time high in nominal terms just above $1,900 by the end of August. However, it subsequently dropped 10% over the next three trading sessions. This move corresponded to a general slump across all so-called “risk assets” following the failure of U.S. policymakers to act decisively on extending the country’s debt ceiling. This political impasse triggered a downgrade from ratings agency Standard and Poor’s, whereby the U.S. lost the AAA credit rating which it had held since 1941. Yet, gold recovered quickly and made a fresh intra-day record high in dollar terms in early September. But then, we experienced a second vicious and protracted sell-off, which saw gold lose 20% over the next three weeks. The metal has recovered its poise over the fourth quarter, but there is little doubt that investor confidence has taken a knock and there are now doubts over gold’s reputation as a safe haven.
Gold in a Bubble?
Many analysts were quick to say that gold was in a bubble that has now popped. Typically, these analysts actively discourage investment in precious metals by saying that because gold doesn’t pay interest or a dividend (and costs money to store in physical form or to hold via futures or ETFs), it is a poor place to park capital. However, in a world where yields are universally low, or come with unacceptable risk, owning gold becomes more attractive. On top of this, the growth in Exchange Traded Funds (ETFs) has allowed the wider public to trade it easily. For many who were unhappy holding physical gold, either because of the storage costs or security risks, ETFs have proved to be a viable alternative.
But die-hard gold bugs (who point to gold’s universal acceptance as a medium of exchange for thousands of years) say that gold is nowhere close to “bubble territory.” They note that when adjusted for inflation, the previous record high of $850 achieved back in 1980 would price gold at around $2,400 today. Gold bugs also argue that gold is destined to rise much further than this, as central banks continue to print money and inject liquidity into the markets. This is viewed as a desperate measure to combat the debt deleveraging currently taking place. In addition, as every country seems intent on boosting growth by cheapening their currency to encourage exports, this simultaneous devaluation of fiat currencies can only boost gold’s appeal. Bullish gold investors are quick to point out how gold holds its value and frequently cite the following example: after the Bretton Woods Agreement in 1946, gold was fixed at around $35 per ounce. Back then, an ounce of gold would buy you a decent suit. Flash forward to today, an ounce of gold will still buy you a good suit, but $35 won’t. Which would you rather have held over the last 75 years: $35 or an ounce of gold?
Central Bank Purchases
One of the biggest fundamental drivers for gold’s recent price rise has been the changing behavior of central banks. For over twenty years, central banks were net sellers of bullion. But in the last couple of years, we have seen significant purchases by China, Russia, India, and Mexico amongst others. We have also seen Venezuela begin to repatriate its physical gold from banks in Europe, the U.S., and Canada. Meanwhile, the central banks of developed economies, which hold significant proportions of their reserves in gold, stopped selling. There are two reasons for this change in behavior. First, in contrast to many developed countries, emerging market central banks typically have only a small percentage of their foreign exchange reserves in gold; they are now in a position and have the will to rebalance their reserves in gold’s favor. Second, noting the persistent budget deficits that the U.S. is running which threaten the status of the dollar as the world’s reserve currency, there is a wish to diversify out of dollars as well as other fiat currencies.
A Few Thoughts on Silver
Gold and silver are often bundled together these days in the minds of investors. Silver generally moves in the same direction as the yellow metal, but with far greater volatility. Silver has a dual capacity: It is viewed as both an investment and an industrial metal. However, it is rare that these two qualities are considered at the same time. Consequently, when investors are concerned about a slowing global economy, they tend to sell silver and forget about its investment potential. But like gold, silver has acted as a medium of exchange and store of value for thousands of years. There are reasons to believe that investors will rediscover these important properties. In addition, silver tends to get used up in industrial processes and recycling rates are low. This is in stark contrast to gold where the vast majority of gold ever mined still exists above ground. Silver stockpiles have fallen quite dramatically. Estimates suggest that above-ground stockpiles have now fallen to one billion ounces from four billion in 1980.
Looking Forward
As noted previously, gold and to a lesser extent silver have both performed well over the last year. Many investors will be asking themselves if this upward momentum can continue. The drivers for this year are likely to be the same as last: If central banks continue to be net buyers, then gold should find strong support, at least as far as the physical market is concerned. However, the paper (futures and forward) markets dwarf the physical in terms of the outright number of ounces traded each day. Physical buyers tend to be long-term holders who have made the decision to own gold because it offers a method of wealth preservation. It is a store of value and a medium of exchange. It cannot be devalued as it cannot be created by the press of a button as currency and debt instruments can. Therefore, it makes up an important part of any investment portfolio.
Yet, over the short-term, the movements in the gold price correlate closely with those of other “risk assets.” Leveraged investors, such as fund managers and speculators, use the futures market and ETFs. These instruments are typically traded on margin. Consequently, if say equity markets experience a sell-off, there is usually a rush to liquidate all margined positions to raise cash and limit future losses. Both gold and silver have been caught up in these sell-offs before, and it’s probable that they will suffer again. As we have seen this year, the buy-side of the gold trade can get overcrowded; a small piece of negative news can result in a rout and heavy losses for longs, especially if over-leveraged. One thing is for certain ? precious metals will remain volatile for as long as economic uncertainty continues to grow.
- David Morrison contributed to this article
Given gold’s recent lethargy, it’s easy to forget just how well it has performed over the last twelve months. At the time of this writing (early December 2011), gold is up around 22% on the year. Compare this to the major global stock indices: The U.S. Dow Jones Industrial Average is up around 4%; the UK FTSE100 is down 7%, the German DAX has fallen 14% while the Japanese Nikkei 225 is down 15% and the Shanghai Composite is heading for an 18% loss. Even when looking at other metals, gold has outperformed. Silver is about 3% higher while COMEX copper has fallen around 20% over the last twelve months.
However, 2011 was not all fun and games for gold bulls. Gold began the year struggling to break above $1,400 and fell steadily over January to retest support just above $1,300. Then gold embarked on a strong rally which eventually took it to a fresh all-time high in nominal terms just above $1,900 by the end of August. However, it subsequently dropped 10% over the next three trading sessions. This move corresponded to a general slump across all so-called “risk assets” following the failure of U.S. policymakers to act decisively on extending the country’s debt ceiling. This political impasse triggered a downgrade from ratings agency Standard and Poor’s, whereby the U.S. lost the AAA credit rating which it had held since 1941. Yet, gold recovered quickly and made a fresh intra-day record high in dollar terms in early September. But then, we experienced a second vicious and protracted sell-off, which saw gold lose 20% over the next three weeks. The metal has recovered its poise over the fourth quarter, but there is little doubt that investor confidence has taken a knock and there are now doubts over gold’s reputation as a safe haven.
Gold in a Bubble?
Many analysts were quick to say that gold was in a bubble that has now popped. Typically, these analysts actively discourage investment in precious metals by saying that because gold doesn’t pay interest or a dividend (and costs money to store in physical form or to hold via futures or ETFs), it is a poor place to park capital. However, in a world where yields are universally low, or come with unacceptable risk, owning gold becomes more attractive. On top of this, the growth in Exchange Traded Funds (ETFs) has allowed the wider public to trade it easily. For many who were unhappy holding physical gold, either because of the storage costs or security risks, ETFs have proved to be a viable alternative.
But die-hard gold bugs (who point to gold’s universal acceptance as a medium of exchange for thousands of years) say that gold is nowhere close to “bubble territory.” They note that when adjusted for inflation, the previous record high of $850 achieved back in 1980 would price gold at around $2,400 today. Gold bugs also argue that gold is destined to rise much further than this, as central banks continue to print money and inject liquidity into the markets. This is viewed as a desperate measure to combat the debt deleveraging currently taking place. In addition, as every country seems intent on boosting growth by cheapening their currency to encourage exports, this simultaneous devaluation of fiat currencies can only boost gold’s appeal. Bullish gold investors are quick to point out how gold holds its value and frequently cite the following example: after the Bretton Woods Agreement in 1946, gold was fixed at around $35 per ounce. Back then, an ounce of gold would buy you a decent suit. Flash forward to today, an ounce of gold will still buy you a good suit, but $35 won’t. Which would you rather have held over the last 75 years: $35 or an ounce of gold?
Central Bank Purchases
One of the biggest fundamental drivers for gold’s recent price rise has been the changing behavior of central banks. For over twenty years, central banks were net sellers of bullion. But in the last couple of years, we have seen significant purchases by China, Russia, India, and Mexico amongst others. We have also seen Venezuela begin to repatriate its physical gold from banks in Europe, the U.S., and Canada. Meanwhile, the central banks of developed economies, which hold significant proportions of their reserves in gold, stopped selling. There are two reasons for this change in behavior. First, in contrast to many developed countries, emerging market central banks typically have only a small percentage of their foreign exchange reserves in gold; they are now in a position and have the will to rebalance their reserves in gold’s favor. Second, noting the persistent budget deficits that the U.S. is running which threaten the status of the dollar as the world’s reserve currency, there is a wish to diversify out of dollars as well as other fiat currencies.
A Few Thoughts on Silver
Gold and silver are often bundled together these days in the minds of investors. Silver generally moves in the same direction as the yellow metal, but with far greater volatility. Silver has a dual capacity: It is viewed as both an investment and an industrial metal. However, it is rare that these two qualities are considered at the same time. Consequently, when investors are concerned about a slowing global economy, they tend to sell silver and forget about its investment potential. But like gold, silver has acted as a medium of exchange and store of value for thousands of years. There are reasons to believe that investors will rediscover these important properties. In addition, silver tends to get used up in industrial processes and recycling rates are low. This is in stark contrast to gold where the vast majority of gold ever mined still exists above ground. Silver stockpiles have fallen quite dramatically. Estimates suggest that above-ground stockpiles have now fallen to one billion ounces from four billion in 1980.
Looking Forward
As noted previously, gold and to a lesser extent silver have both performed well over the last year. Many investors will be asking themselves if this upward momentum can continue. The drivers for this year are likely to be the same as last: If central banks continue to be net buyers, then gold should find strong support, at least as far as the physical market is concerned. However, the paper (futures and forward) markets dwarf the physical in terms of the outright number of ounces traded each day. Physical buyers tend to be long-term holders who have made the decision to own gold because it offers a method of wealth preservation. It is a store of value and a medium of exchange. It cannot be devalued as it cannot be created by the press of a button as currency and debt instruments can. Therefore, it makes up an important part of any investment portfolio.
Yet, over the short-term, the movements in the gold price correlate closely with those of other “risk assets.” Leveraged investors, such as fund managers and speculators, use the futures market and ETFs. These instruments are typically traded on margin. Consequently, if say equity markets experience a sell-off, there is usually a rush to liquidate all margined positions to raise cash and limit future losses. Both gold and silver have been caught up in these sell-offs before, and it’s probable that they will suffer again. As we have seen this year, the buy-side of the gold trade can get overcrowded; a small piece of negative news can result in a rout and heavy losses for longs, especially if over-leveraged. One thing is for certain ? precious metals will remain volatile for as long as economic uncertainty continues to grow.
- David Morrison contributed to this article
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