Gold “Needs to Reclaim $1700” for Renewed Buying, with Breach of $1600 “Expected to Cause Liquidation”
SPOT MARKET gold prices traded as low as $1640 an ounce – less than 1% off the previous day’s high – during Friday morning’s relatively flat London session.
European stock markets were also broadly flat, as were commodities, while government bond prices ticked lower.
“Overall, the price action since the February high of $1790 has been quite weak,” says the latest technical analysis from gold bullion dealing bank Scotia Mocatta.
We would expect liquidation selling of gold below $1600. We do not see fresh buying emerge until we can reclaim the $1700 level.”
“Gold prices have been well supported since 2009 by the rapid expansion of central bank liquidity,” adds the latest research note from commodities analysts at French investment bank Natixis.
“Nevertheless, with the gradual recovery in the US economy beginning to call into question the need for additional quantitative easing from the Fed, gold prices have failed to improve upon their September 2011 peak.”
US Federal Reserve policymakers are due to announce their latest monetary policy decisions next week.
Heading towards the weekend, Gold in Dollars was down around 0.8% on last Friday’s close by lunchtime today in London – while the gold price in Euros was off 1.8%.
Silver prices meantime hovered around $31.85 per ounce Friday morning – 0.9% up on the week.
Data published Thursday by the Silver Institute show strong growth in physical silver investment last year – although other forms of investment, such as ETFs, saw declines.
The International Monetary Fund is aiming to “increase the pot” of money available to respond to stresses caused by the Eurozone crisis, IMF managing director Christine Lagarde told Bloomberg Thursday, ahead of today’s G20 gathering as part of the IMF Spring Meetings in Washington.
A total of $320 billion in additional contributions has so far been pledged, Lagarde said.
“I have currently commitments from the Eurozone, Japan, from the Nordic countries, from Switzerland,” she added.
“[This] is not the final ask…it is a step on the way. We are looking for a much more critical mass before the end of the week.”
Non Eurozone leaders have repeatedly urged European governments to do more to combat the crisis, including reducing deficits. There are also calls for the IMF to adjust member countries’ quotas – which determine their maximum level of contribution, voting power and access to IMF loans – to recognize the greater importance of emerging economies.
“Quote reforms should not be delayed,” said India’s finance minister Pranab Mukherjee.
“We are not ready to set a figure [on IMF contributions],” added Brazil’s finance minister Guido Mantega Thursday.
“There are preconditions that have not been fulfilled by [European] countries…some countries are not very enthusiastic about the IMF reforms. They are much more enthusiastic about asking for money rather than moving forward with the quota reform.”
“At this critical juncture,” said Bank of Japan governor Masaaki Shirakawa, “we need aggressive monetary easing. That’s without question.”
Here in the UK, Bank of England Monetary Policy Committee member Adam Posen has denied he was ever “an automatic vote” for more quantitative easing.
At this month’s MPC meeting Posen voted to keep asset purchases at their current level – having voted to raise QE at 15 of the previous 18 meetings – minutes published Wednesday show.
“When I forecast [in March 2011] 1.5% inflation and trending down for summer 2012,” writes Posen on the Independent website, that was when some MPC members were voting to tighten policy and no one else was voting for additional ease.”
“Of course,” he adds, “the inflation forecast is higher now than it was then precisely because rightly we did more QE.”
UK consumer price inflation was 3.5% last month – up from 3.4% in February. Posen told London’s Evening Standard Thursday that the MPC is taking this uptick in inflation “very seriously”.
UK retail sales meantime rose 3.3% in the year to March – a jump from February’s 1.0% year-on-year figure – according to official data published Friday.
The Pound rose to its highest level since November against the Dollar following the retail sales release – while Sterling gold prices dropped 0.7% to £1018 an ounce, close to four-month lows.
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
(c) BullionVault 2012
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.