247Bull.com Editor: Ordinary investors are not convinced that everything is fixed and that they no longer need to hold gold as insurance. Retail investors responded to the drop in the price by buying record amounts of physical metal. The US Mint, for example, reported that a record 63,500 ounces (around 2 tons) of gold were sold on 17 April alone. This brings their total sales for the month to 147,000 ounces, more than the previous two months combined with more than a week still to go. Meanwhile buyers in Asia have also rushed to buy gold triggering one of the strongest waves of physical gold buying in 30 years.
Wholesale gold prices rose back above $1430 per ounce Monday morning for the first time since last Monday’s price drop, amid reports of strong buying in Asia, while stocks gained and US Treasuries fell.
Silver meantime ticked higher above $23.60 an ounce, though remained below Friday’s high, while other commodities also gained with the exception of copper.
Gold exchange traded funds by contrast continued to see outflows towards the end of last week.
“It remains to be seen which of these offsetting forces eventually wins out and exerts its influence over gold prices,” says Ed Meir, metals analyst at brokerage INTL FCStone.
“Our guess is that the sharp bounce in retail buying will likely dominate and succeed in sending prices higher over the course of the next week or two.”
“Gold is still not trading as a safe haven asset,” adds VTB Capital an analyst Andrey Kryuchenkov, “swinging back and forth in line with other metals in the precious complex, other liquid commodities and equities…volumes will remain very thin as players digest the latest pullback.”
“The aggressiveness of [last week's] fall suggests that we are still in a consolidation rather in a reversal role,” says Tim Riddell, head of ANZ Global Markets Research, Asia.
“The $1435 level is likely to provide resistance…we really need to get back into the $1500s to say that there’s something more substantial taking place.”
On New York’s Comex exchange, “the liquidation of net speculative length [in gold contracts] appeared relatively mild [in the week ended last Tuesday],” says Standard Bank commodity strategist Marc Ground, referring to money managers’ so-called net speculative long position, calculated as the difference between the number of bullish and bearish contracts held.
“Only [the equivalent of] 20.8 tonnes (or 5.8%) were shed over the week — a long way from the worst we’ve seen this year (90.4 tonnes at the end of January). relatively strong unwinding of long positions (35.8 tonnes compared to this year’s record of 45.9 tonnes) was softened by a solid decrease in speculative shorts (15.0 tonnes).”
Ratings agency Fitch meantime has downgraded the UK’s credit rating from AAA to AA+, following a similar downgrade from Moody’s back in February. Standard & Poor’s has maintained its triple-A rating on British government debt.
“Despite the UK’s strong fiscal financing flexibility underpinned by its own currency with reserve currency status and the long average maturity of public debt, the fiscal space to absorb further adverse economic and financial shocks is no longer consistent with a ‘AAA’ rating,” said a statement from Fitch Friday.
“The UK and almost all of Europe have erred,” manager of world’s biggest bond fund Pimco Bill Gross tells the Financial Times, “in terms of believing that austerity, fiscal austerity in the short term, is the way to produce real growth. It is not. You’ve got to spend money.”
Gross adds that investors in government debt “want growth much like equity investors” and that excess austerity can lead to “recession or stagnation [causing] credit spreads [to] widen out – even if a country can print its own currency and write its own checks”.
Over in Italy, the Eurozone’s biggest issuer of public debt, Giorgio Napolitano has been elected for a second term as president by the country’s parliament after it rejected the nomination of Franco Marini. Italian politicians have failed to form a government since the general election two months ago.
Russia would like to “increase its participation” in negotiations about Cyprus, the country’s finance minister Anton Siluanov has said, but will only restructure a €2.5 billion loan in return for protection of Russian financial interests in the country, Reuters reports.
“Money of our companies has been frozen there,” Siluanov told reporters at the G20 meetings in Washington at the end of last week.
“We would like this money to reach its recipients.”
Ben Traynor | BullionVault