Gold finished the session in New York smack bang in the middle of the range (1528-1552), just short of 1540, and it feels as though the market may have got itself caught a little short. After reaching a five month low (the market has fallen 3.40% in the four days prior to yesterday), it rebounded for the first time in 5 trading days on Thursday. The yellow metal continued to push higher in Asia on Thursday, gaining more than $10. Good selling on the futures exchange seemed to cap the market at 1550, but one gets the feeling there are stops lurking above and we may trade higher in the short term.
Bullion has erased the hard-fought gains made this year in a matter of sessions. It tumbled to a four-and-a-half month low on Wednesday to USD 1,527 per ounce. It had hit a record high of USD 1,920.30 per ounce in September last year.
However, on Thursday we saw the tables turn. Gold rallied more than 2.6 percent o n Thursday, its largest one-day gain since late January, as technical buy signals and new signs of a sluggish U.S. economy more than offset deepening despair over the euro zone.
After flirting with a bear market on Wednesday, down more than 20 percent from its September record, bullion rallied early after Philadelphia Federal Reserve data showed a contraction in factory activity in the U.S. mid-Atlantic region that rekindled some hope the Fed would plough more money into the system to stimulate the economy, traders said.
Technical buying also fueled gains after gold had nearly hit a key December low, trading just shy of key technical long-term support at the 100-week moving average of $1,515 per oz.
Psychologically and technically, $1,500 is the next big mark for gold
Greece is heading to new elections in June and uncertainty about its status in the euro zone remains high. Because of these concerns, investors are moving to cash, especially as every new headline seems to raise worries.
Paper currencies are in vogue right now, with the dollar bid up. Until people can use gold to buy their groceries or pay their mortgage, people are keeping cash on hand.
Right now, the gold market is in the middle of a battle between the paper traders and the holders of physical metal. We are seeing huge Chinese import stats for physical gold and robust demand elsewhere for physical metal. Overselling of precious metals created pressure resulting in a dip in gold prices.
Liquidation is taking place irrespective of market fundamentals. Jewelers don’t know what to do. Maybe when the price has stabilized at some levels, they will start to reenter the market
Increasingly risk-averse investors are taking refuge in the US dollar; its traditional inverse relationship with gold has been more prevalent in recent weeks. Despite its recovery, it remains vulnerable to a further drop after its longest stretch of losses in nearly five months.
Gold fell along with other more industrial commodities such as copper and crude oil, under pressure from an early rise of the dollar, which put silver on track for its longest stretch of consecutive daily losses in nearly four years. Fears a Greek exit from the euro zone would worsen the European debt crisis gripped European markets on Wednesday, sending shares and other riskier assets lower as investors shifted funds into safe havens like the U.S. dollar.
The prospect of improvement in physical demand for gold fro, the Indian jewellery sector took a knock on Wednesday with the drop in the rupee to a record low against the dollar, driven by the widespread risk aversion. Buying in India, the world’s largest bullion consumer, has emerged with the decline in the dollar-denominated gold price to 4 and half month low this week, but local dealers have said the weakness in the rupee could curb this. Definitely physical buying has gone up, although demand is not overwhelming.
