247Bull.com Editor: The handling of the Cyprus bailout has proven that holding physical gold – that has no counterparty risk – is now more important than ever. It is therefore not surprising to see money exiting the gold ETFs. Some of these sellers are likely repurchasing their metal in the physical market, something which does not show up in any weekly reports.
The price of gold extended its worst two-day drop vs. the Dollar since June last year Thursday morning in London, falling as low as $1540.50 per ounce before rallying to $1551.
Commodities also stemmed their fall and major government bonds trimmed earlier gains.
European stock markets were mixed, but Japanese shares leapt 2.2% on the day after the central bank in Tokyo vowed “to use every means available” to reverse the country’s two-decade economic depression and price deflation.
Spending more than $1.4 trillion in newly-created money over the next 2 years, the Bank of Japan’s fresh quantitative easing will see it buy listed equities and real-estate trust funds as well Japanese government bonds.
On the news the Yen fell nearly 3% versus the Dollar. That only unwound the last 36 hours of falling gold prices, however, which rose back to ¥4750 per gram – a new three-decade high when first hit at the start of this year.
“Stop loss orders were triggered [Wednesday] when the gold price fell through key support levels,” says a note from German bank and bullion retailer Commerzbank.
“We believe the next wave will be another corrective wave [with] a target as low as $1308,” says Russell Browne at bullion-bank Scotia Mocatta, pointing to Elliott Wave analysis.
“However, gold has to first break through big support level in $1522 to $1535 level, the lows from 2011 and 2012.”
“We have to think that the gold sell likely has some roots in heavy fund liquidation,” says comment from brokers INTL FCStone, adding “Our guess is that the lone holdout – John Paulson – may finally be throwing in the towel and perhaps paring some of his massive positions.”
The giant US-listed SPDR Gold Trust ETF shed a further 2.7 tonnes on Wednesday after losing more than 8 tonnes Tuesday according to Reuters data.
Now holding 1206 tonnes of gold bullion to back its shares – more than 10% less than the all-time peak of late-November last year – the trust was 5% owned by Paulson & Co. as part of its flagship, gold-denominated hedge funds.
The quantity of bullion held for silver ETF trust funds was unchanged Wednesday according to Bloomberg. But silver prices also extended their drop for the week to 5.6% on Thursday morning with a new 8-month low versus the Dollar beneath $26.80 per ounce.
“Silver broke the four-year trend line now at $29.80 and corrected lower,” says a note from bullion market-making bank Societe Generale, “and is nearing the multi-year lows at 26.40/26.05.
“This zone is made up of the lows since 2011.”
SocGen earlier this week issued a report declaring “the end of the gold era” for the last decade’s bull market, citing expectations of higher interest rates from the US Federal Reserve.
“Things still have a way to go before we can say we’ve fully recovered from the worst financial crisis and recession since the 1930s,” John C.Williams of the San Fran Fed told an audience in Los Angeles on Wednesday.
A day after Dennis Lockhart, president of the Atlanta Federal Reserve Bank, said the US Fed’s $40 billion per month asset purchases “continue to be justified”, Williams said he expects the unemployment rate “to edge down to a little below 7% by late 2014 and fall below 6.5% in the middle of 2015.”
Six-point-five is the jobless level at which the Fed would consider tightening its ultra-accommodative policies, according to its recent policy statements. Williams is not a voting member of the Fed’s main committee until 2015.
Today both the Bank of England and the European Central Bank meantime kept their key interest rates on hold yet again, offering overnight money to commercial banks at a record-low 0.50% and 0.75% respectively.
The gold price in Euros today hit its lowest level in four weeks at €1200 per ounce – a record high when first reached on the way up in August 2011.
UK savers and investors saw gold priced in Sterling make a new 2013 low at £1020 per ounce.
Adrian Ash | BullionVault