The price of gold rose in Asia and jumped at the start of London trade Tuesday, hitting $1267 per ounce to recover 40% of last month’s crash before easing back.
Prices for silver bullion also rose, but lagged gold’s rate of gain, before slipping back below last week’s finish at $19.69 per ounce.
European stock markets meantime fell, as did the Euro – down 0.5¢ against the Dollar – after Eurozone and IMF officials said Greece has just three days to prove its commitment to fresh budget cuts.
Prices to buy gold with Euros touched €970 per ounce, a near 1-week high more than 7% above last week’s 34-month low.
“We expect gold to trade with a positive bias going ahead,” says a technical analysis of the gold chart from Sharekhan, India’s second largest stock broker.
“The crucial support is placed at $1180,” says Sharekhan, “which is the low it touched” at the end of June.
“Friday’s multi-year low of $1180 looks like a bad quarter-end liquidation memory,” agrees Canadian bank and London bullion market-maker ScotiaMocatta.
On a technical analysis, “[Monday's] higher close confirms Friday’s bullish hammer reversal warning on the daily chart,” says Scotia.
Last week’s record-large number of bearish contracts held by speculative traders in US gold futures also “leaves gold open to a more sustained short covering” as they scramble to close their positions at rising prices, says fellow London market-maker HSBC.
“[This Thursday's] 4th of July holidays in the US also make it likely the gold markets will be relatively thin,” HSBC adds. “This could all contribute to a rally.”
After advising clients to sell gold in January, “At this time we believe gold and gold miners represent good risk/reward,” says Carter Worth, managing director and chief market technician at Oppenheimer Asset Management Inc., which currently runs some $9 billion in client money.
“Indeed, the recent extreme weakness is judged to be the reciprocal…of the extreme strength witnessed in the summer of 2011. The ‘despair’ relating to gold now is as palpable as ‘euphoria’ then.”
Urging “immediate action” on Monday, investment and bullion bank J.P.Morgan told clients to “go overweight” on commodities – a call last made in October 2010 – because “consumers are likely already starting to act on the 20%+ swoon” in natural resources prices.
“Price-driven involuntary production cuts in crude oil, copper, and gold” should also help buoy prices, says J.P.Morgan.
Bank of America agrees, noting today that “Around one-third of the gold mining industry does not cover ‘all-in’ cash production costs.”
But while “in the long term [mining problems] will provide big support,” says $2.2 billion fund manager Charlie Morris at HSBC Global Asset Management in London, “in the short term it won’t really make any difference at all.
“I’m still bullish [on gold prices] long term, but I just think we’ve got a big nasty bear market in the meantime.”
“Even if gold were to bottom off its current lows,” adds a note from brokers Jefferies Bache, “we believe gold equities face further downside.
“Gold mining is a very challenging and high risk business.”
Looking at the classical commodity-price cycle, falling prices to buy gold mean “New mines will be put on hold, old mines closed, some permanently, exploration will dwindle,” writes Lawrie Williams at MineWeb.
“Global gold production will fall, shortages will develop and then prices will be ultimately forced up dramatically…Such is the cyclical nature of the global mining sector.”
Over in Asia today, gold demand was “strong” amongst wholesale dealers said traders on Tuesday morning. But the pace of purchasing “is not on the scale we saw in April,” Bloomberg quotes Citics Futures Co. analyst Huang Fulong.
“The recent short-covering rally [in US gold futures] is expected to continue,” says Huang, “before the US holiday and payrolls data later this week.”
After Thursday’s Independence Day holiday, Friday will bring US jobs data for June.
Adrian Ash | BullionVault