247Bull.com Editor: Gold in US dollars will encounter strong resistance when it reaches the high made on 26 February at $1,620 per ounce. In euro terms, however, the yellow metal has broken out of the downtrend channel that it began to form last November and is beginning a move towards the psychology significant 1,300 level. Meanwhile the HUI index of gold miners has also begun to move off its recent low and is showing tentative signs of a bottom.
U.S. dollar gold prices continued to hover around $1610 per ounce Friday morning, dipping back below that level after making gains in Asian trading, while stocks and commodities were flat on the day ahead of a vote by Cyprus’s parliament on measures aimed at raising money and securing a bailout.
“[Gold's] $1620 high from Feb 26 will be a key level,” says the latest technical analysis from bullion bank Scotia Mocatta.
“If we can close above there, it will open up a test of the top of the bearish trend channel, currently at $1643.”
“The slow movement in prices has really drained the interest in the market,” one Hong Kong trader told newswire Reuters this morning.
“If we can break through $1620, more people will take a look at it and think maybe there will be some momentum.”
Heading into the weekend, gold looked set to record its biggest weekly gain since November by Friday lunchtime in London, up around 1% from last week’s close.
By contrast, the world’s biggest gold exchange traded fund, the SPDR Gold Trust (ticker GLD), was on course for its 12th week of outflows, having lost 11.7 tonnes between last Friday and yesterday.
Since the start of 2013 the GLD has seen the volume of gold held to back its shares drop by nearly 10%.
GLD investors “are exiting at more than twice the rate of sales at the nearest US competitor [the iShares Gold Trust, IAU] as a rebounding economy dims the appeal of bullion,” reports news agency Bloomberg.
Gold in Euros meantime looks set to record its fourth straight weekly gain later today, despite dropping back below €1250 an ounce as the Euro ticked higher against the Dollar.
“[Gold's gains this week are] due to substantial short-covering by speculative funds,” says a note from VTB Capital, “as the Cyprus crisis has reminded markets that significant potential pitfalls remain in Europe… However, gold remains in a strong downtrend since the failed attempt to break above $1800 in October.”
Silver meantime drifted back towards $29 an ounce this morning, having broken above that level during Thursday’s trading.
Lawmakers in Cyprus are due to vote today on plans for a national solidarity fund aimed at raising the €5.8 billion needed to secure a €10 billion bailout, after talks with Russia failed to secure financial support.
Options to be discussed include using state assets as collateral for selling bonds and the imposition of capital controls to reduce deposit withdrawals when banks reopen, as they are scheduled to do next Tuesday.
Politicians are also expected to discuss restructuring the banking sector, with the European Central Bank saying it will cut off emergency liquidity provision on Monday for any banks it considers insolvent.
A plan to split Cyprus’s second-biggest lender Laiki into “good” and “bad” banks has been rejected by European leaders, the Financial Times reports today, with German chancellor Angela Merkel objecting to the idea of nationalizing Cypriot pension funds.
“There was some discussion of going back to the original plan of a bank levy,” the FT quotes an unnamed source, “but there are objections from the [Cypriot] central bank.”
Cypriot lawmakers rejected plans earlier this week that would have imposed a levy of 6.75% on deposits below €100,000 and 9.9% on those above that level.
“The European project is crashing to earth,” former Cyprus central bank governor Athanasios Orphanides says in an FT interview, adding that conditions attached to a potential bailout have made “a mockery” of European Union treaties.
“We have seen a cavalier attitude towards the expropriation of property and the bullying of a people,” Orphanides says.
Elsewhere in Europe, German businesses have become more pessimistic this month about current and future economic conditions than they were in February, according to IFO survey data published this morning.
Ben Traynor | BullionVault