Gold Correction Continues Despite Chinese New Year

By: GoldCore

Gold’s New Year correction continues and it has fallen another 0.7% today and 4% since the start of the year. This most recent correction is due to profit taking initially, increased risk appetite due to some positive economic data and the dollar’s recent strength.

The short term technicals have deteriorated but the 100 day moving average at $1,340/oz should offer support as it has done in recent months. Gold is now back at prices seen in October and the last three months look like another period of consolidation prior to challenging higher levels in 2011.

 Gold in EUR – 1 Year (Daily)

While the technicals have deteriorated in dollar terms, it is important to note that gold has remained robust in euros due to concerns about the continuing sovereign debt crisis and the long term existential threat to the euro itself. Gold in euros has also now had a long period of consolidation and prices are now near the prices reached last June (see chart above).

The fundamentals remain sound with significant demand particularly out of India, China and wider Asia. This is clearly seen in the premiums being paid for gold bars in Mumbai, Singapore, Hong Kong and Shanghai. Chinese New Year is on February 4th this year and jewelers and bullion dealers continue to stock up to cater for the growing demand of some 1.3 billion Chinese people. This year inflation has taken off in China and inflation concerns may lead to record demand again this year.

There were many important news stories this week including the Tesco Gold Exchange news and Federal Reserve President Koenig’s comments that the gold standard was a “legitimate system” (see our News and Commentary sections).

The “Tesco Gold Exchange” story shows that the international ‘cash for gold’ phenomenon continues and that the man and woman in the street continue to be sellers of gold rather than buyers of gold.

From a contrarian perspective this would suggest that gold’s bull market will continue. If Tesco starts selling gold coins and bars to the public (as one Harrods shop and a handful of gold ATMs internationally are now doing) then it will be time to sell gold or reduce allocations to gold.

Tesco customers who sell gold jewellery will have their accounts credited with cash showing that gold is again becoming a means of exchange. This is very significant.

Koenig’s remarks allied to those of World Bank President Zoellicks after Bernanke’s QE2 announcement suggest that gold is being remonetised and is increasingly being seen in elite banking circles internationally as a currency rather than a commodity.

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This update can be found on the GoldCore blog here.

Mark O'Byrne
Director

WINNERS MoneyMate and Investor Magazine Financial Analysts 2006

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