247Bull.com Editor: Following its peak in early 2006 at $728 gold consolidated for around 16 months, and after it hit a peak of $1,033 in early 2008 it consolidated for around 17 months. The current consolidation – following gold’s peak at $1,923 in September 2011 – has been going on for around 15 to 16 months, so it is nothing out of the ordinary. Gold is “trend ready” and will be able to rise a considerable distance from this nice base formation, probably to around $2,600 an ounce.
Spot market gold bullion prices rose to one-week highs above $1710 an ounce Monday morning, while European stock markets fell following news that Italy’s prime minister plans to resign.
“Gold continues to consolidate its gains from August-September, and is still respecting its long term uptrend,” says the latest technical analysis from bullion dealing Scotiabank.
Italy’s FTSE MIB index was down more than 3% on the day by Monday lunchtime, after technocrat Italian prime minister Mario Monti announced over the weekend his intention to resign once Italy’s next budget is passed by parliament.
Monti’s announcement comes after members of former prime minister Silvio Berlusconi’s People of Liberty party last Thursday declined to support a package of economic measures proposed by Monti’s government.
Berlusconi wrote on his Facebook page Saturday that he intends to contest next year’s elections.
“Everybody agrees that we need an acknowledged leader to win,” he said.
“Such leader, a replica of what Berlusconi was in ’94, has not been found. It is not a matter of not having searched: we have indeed searched for one, but he does not exist…it is with desperation that I am returning to take interest in public affairs, and once again I am doing so out of a sense of responsibility.”
Over in Athens meantime, the Greek government has extended until noon tomorrow London time the deadline for bondholders to participate in its bond buyback, through which Greece hopes to buy back debt with a face value of around €30 billion, spending €10 billion since the bonds are trading below par.
“Investors should bear in mind that even if Greece accepts all bonds tendered in the Invitation, it will continue to engage with its official sector creditors in considering further steps to put its debt on a sustainable path,” says a statement from the Greek finance ministry.
“Future measures may not involve an opportunity to exit investments in Designated Securities at the levels offered for this buy back.”
Greece was close to reaching its target for the buyback by Sunday, according to an unnamed finance ministry official quoted by news agency Bloomberg.
“They call this debt sustainability, but it’s only [sustainable] on paper,” says Commerzbank chief economist Joerg Kraemer.
“The buyback was a success because investors do not believe in the debt sustainability.”
Silver meantime hovered above $33.30 an ounce for most of Tuesday morning, up slightly on last week’s close, while other industrial commodities ticked higher and US Treasury bonds also gained.
Over in New York, the difference between bullish and bearish contracts held by gold futures and options traders on the Comex – known as the speculative net long position – fell 18.5% in the week ended last Tuesday, according to the weekly Commitments of Traders report published Friday by the Commodity Futures Trading Commission.
“The cracks in investor confidence that we saw in the preceding week widened considerably,” says Marc Ground, commodities strategist at Standard Bank.
“[However] despite the liquidations, we still feel that the prospect of continued monetary accommodation should provide support for gold over the medium term. Coupled with fairly robust physical buying, we maintain that dips below the $1700 level represent a good buying opportunity.”
Holdings of gold bullion backing the SPDR Gold Shares (GLD), the world’s biggest gold ETF, rose to a new high of 1353.3 tonnes on Friday.
The Federal Open Market Committee meets tomorrow and Wednesday to discuss Federal Reserve policy.
“The FOMC faces a tricky task in managing the end of Operation Twist,” says a note from ING, referring to the Fed’s maturity extension program, due to end this month, through which the central bank sells shorter-dated Treasury bonds and buys longer-dated ones with the aim of lowering longer-term interest rates.
“[The Fed] will be at pains to replace it with something that markets do not interpret as hawkish.”
“Market expectation is that there could be more quantitative easing towards the end of the month, and this will be supportive of gold,” says Lynette Tan, analyst at Philip Futures in Singapore, though she added that uncertainty over the so-called fiscal cliff is likely to keep gold range bound between $1680 and $1750 an ounce.
More recycled gold bullion will flow to Singapore from next year as a result of a new refinery being built there by Swiss refiner Metalor, according to Metalor’s Robert Gilles, quoted by Singapore’s Business Times Monday.
“What is happening now is you have the scrap going out of the region and coming back in the form of good delivery bars,” says Gilles.
Because it’s expensive to transport high value materials, it makes sense to have a refinery taking up the scrap, creating fine gold and then transforming this fine gold into bars.”
South Africa’s Rand Refinery announced last month that it is building an assaying and sampling facility in Singapore.
Ben Traynor | BullionVault