247Bull.com Editor: The patience of gold investors is being tested to the full. It is hard to reconcile the fact that an investment with such incredible fundamentals can perform so poorly for so long. The fact is however, gold is still working off the excesses of its run up to $1,923 in September 2011, and in doing so it is building an excellent base from which to move towards $2,400 and beyond. The distress felt by gold investors during this ongoing consolidation phase is the price they must pay if they are to reap the benefits of holding gold in the years ahead.
U.S. dollar gold prices climbed to $1584 an ounce Tuesday morning, 1.2% above last week’s low, as stocks and commodities also edged higher and the Dollar weakened slightly after another Federal Reserve policymaker spoke in favor of ongoing quantitative easing.
Silver hovered just below $29 an ounce this morning, 3.5% up on last week’s low, while major government bond prices fell.
“Given the heavy selling we saw in a host of markets last week, [precious metals] could push a little higher over the next few days,” says Ed Meir, metals analyst at brokerage INTL FCStone, “but having said that, the technicals in gold and silver remain quite poor and we likely have to do quite a bit more on the upside before some of the technical damage is repaired.”
“Between here and the $1635.48 December low, the gold price should continue to encounter resistance,” says Commerzbank technical analyst Karen Jones.
“Failure to hold over $1554.83 [however] will trigger losses to the $1522.48 December 2011 low.”
Gold in Euros rose back above €39,000 per kilo (hitting €1215 an ounce), slightly up on the week.
Sterling gold prices by contrast were slightly down on last week’s close at £1045 an ounce by lunchtime in London.
The volume of holding held to back shares in the SPDR Gold Trust (ticker GLD), the world’s biggest gold exchange traded fund, fell for the tenth straight session yesterday, the first time this has happened since the GLD was launched in 2004.
This makes the current run of outflows twice as long as the previous highest, with the GLD seeing its bullion holdings fall for five straight sessions on two previous occasions – in October 2010 and May 2011.
On the New York Comex meantime speculative futures traders last month built up their biggest gold short position since 1999.
In the US, asset purchases made by the Federal Reserve as part of its ongoing quantitative easing program “have been reasonably efficacious in stimulating spending” said Fed vice chair Janet Yellen Monday.
Yellen added that she does not currently see any potential costs to QE “that would cause me to advocate a curtailment of our purchase program” and that it should continue until the US labor market improves and that the Federal Open Market Committee should not unwind QE until after interest rates start to rise from their current historic lows.
“The committee’s intention is to leave that accommodation in place until well into the recovery,” she said.
Last Week, Fed chairman Ben Bernanke said there are “clear benefits” to QE when he testified to Congress.
Since the start of February the US Dollar Index, which measures the Dollar’s strength against a basket of other currencies, has risen more than 2.5% to six-month highs above 82.
“A strengthening Dollar, an improving macro[economic] outlook and lower inflation expectations would certainly drive gold lower,” says a note from Societe Generale.
“Since the generally ‘negative’ real [inflation-adjusted] interest period since 2007, gold prices have rallied…if history provides guidance, returning to positive ‘real rates’ would create significant headwinds for gold.”
Over in Europe, economic conditions “may…justify in a certain number of cases reviewing deadlines for the correction of excessive [government] deficits,” said European Commissioner for Economic and Monetary Affairs Olli Rehn Monday, following the latest meeting of Eurozone finance ministers.
France is set to miss its deficit target of 3% of GDP this year and may do so again next year.
“We do not want to add austerity to recession,” said French finance minister Pierre Moscovici.
China “will have to work hard to attain” Beijing’s official growth target of 7.5% this year, due to a “growing conflict between downward pressure on economic growth and excess production capacity”, outgoing premier Wen Jiabao said Tuesday.
Growth of 7.5% would represent the slowest growth since 1990.
China was the world’s second-biggest gold buying nation last year, according to the most recent data from the World Gold Council.
Ben Traynor | BullionVault